Trust or Probate: Deciding the Best Option for Managing Inherited Real Estate

If you’ve inherited real estate recently, are considering leaving property to someone, or are currently living in a home that a loved one will inherit, you are likely wondering about the different types of inheritances and how they affect the inheritor. The two primary forms of inheritance are probate and living trust. We will discuss trust vs. probate, their differences and similarities, how they are established, and how they affect the inheritor here. We will also touch on the classic will and how inheritance works in that situation. Note that different states can have variations on these types of inheritance, and the basics we lay out here pertain to California.

When you inherit property either because you are a direct descendant or because you have been named in a will, that property must pass through the California Probate Court system. If your grandparents or parents pass, and you are the only living heir, and they did not leave a will, you are likely the inheritor. If they did leave a will and they named you in the will, that makes you an inheritor. In both cases, with or without a will, the property and all other assets must go through probate before you can inherit.

If a property is inherited through probate, you must wait for the courts to decide how to honor the will or distribute assets if there is no will. The probate process can take several years in California as the courts are currently overloaded with probate cases.

The largest disadvantage to leaving without a will or leaving no will at all is that inheritors must wait until the property passes through probate before they can claim any of the assets. Furthermore, the inheritors must pay costly court fees, taking away from any intended inheritance. Some inheritors cannot afford to pay the probate fees and end up losing access to any inherited property.

Many well-meaning people write out wills in front of an attorney and have them signed and witnessed, thinking they are covering all their estate bases, only to have their inheritors unable to claim their inheritance because of probate issues. In this case, the property will be sold “in probate” to the highest bidder.

A living trust, in contrast, is a document created and signed with an estate attorney, typically in addition to a will, that places assets into a trust to be directly passed to inheritance in the event of the death of the one who created the trust. It is called a “living” trust because the owner of the estate still has full access to the estate while they are still living. Upon death, the assets are passed to the inheritors without ever having to go through probate.

If you inherit property in trust, you typically will inherit outright. The only thing left to be done is to have the paperwork filled out that places your name on the property.

The primary disadvantage to a living trust, in contrast to a simple will, is that it is much more costly to set up at first. A living trust is a more complex document and places all of your assets legally into separate ownership, the ownership of the trust. While the estate owner is alive, they are the trustee and can utilize the estate however they wish. Once the estate owner passes, the inheritor becomes the trustee and has those same rights. You can see how this process is more complicated and therefore requires more legal work. More legal work means higher legal fees upfront.

In the end, it is typically in the best interest of all parties involved to establish both a will and a living trust. A will is a simple document that expresses the will of the estate owner. You can list your assets and designate the assets to your inheritors as you see fit. All you need then is your signature and the signatures of two witnesses who can attest to the fact that you are of sound mind when you draw up and sign the will. This list is important because it can include things that may not be of financial value, and it can be a sort of goodbye to your loved one, expressing your wishes for their lives on intangible issues that may or may not be legally relevant.

Then, in addition to your will, it is a good idea to place your financial assets into a living trust. The living trust acts as a support for your will and will allow your inheritors to avoid probate court and the time and money involved therein. You don’t have to set up a living trust right away. Everyone should have a will, but not everyone can afford a living trust. Indeed, not everyone needs a living trust right away.

For example, in California, there’s an inheritance form you can fill out if the assets are less than $166,500, which will allow you to entirely avoid probate even if there is no will or trust. However, once your estate reaches a large enough dollar amount, you will want to have a living trust that ensures your inheritors don’t end up paying much of their inheritance in probate fees.

The Virgilio Team has decades of experience in trust and probate properties in California, and we have a reputation for exceeding our client’s expectations. Once you have inherited a property, we will help you figure out which approach is best to move forward, whether you are hoping to sell your inherited home or buy a property in probate. For more information on a trust sale vs. a probate sale or anything else related to real estate in San Jose and the surrounding areas, contact The Virgilio Team today.