business meeting about trust administrationMany people get these two things confused. A recent article, “Appreciating the differences between probate and trust administration,” from Lake County News clarifies the distinctions.

Let’s start with probate, which is a court-supervised process. To begin the probate process, the applicant files the required pleadings with the clerk of court and, then, may need to appear in court.  Notice to creditors may be published in the local newspaper to minimize the time that unknown creditors may make claims against the estate. However, to start a trust administration, a letter of notice is mailed to the  beneficiaries of the Trust. Trust administration is far more private, which is why many people chose this path.

In the probate process, the last will and testament and almost all documents in the court file are available to the public. While the general public may not have any specific interest in your will, estranged relatives, relatives you never knew you had, creditors, and scammers have easy and complete legal access to this information.  If a person dies without a will, the court documents created in intestacy (the heirs inherit according to state law) are also available to anyone who wants to see them.

In trust administration, the only people who can see trust documents are the heirs and beneficiaries.

Costs also differ for the two administrations.  To commence probate in South Dakota, a court filing fee must be paid to open the probate.  In addition, a publication fee may be paid if notice is published in the local newspaper.  On top of court costs and publication fees, attorney’s fees and personal representative’s fees (which may be waived) are also added.  Some fees are on an hourly basis, while other fees may be on a flat fee basis.  All fees may vary depending upon the jurisdiction.

For trust administration, the trustee and the estate planning attorney are typically paid on an hourly basis (however, an attorney may have a separate fee structure). Expenses are likely to be far lower, since there is no court involvement.

Probate and trust administration do have similarities. Both require that the decedent’s assets be collected, safeguarded, inventoried, and appraised for tax and/or distribution purposes. In addition, tax obligations, debts, administration expenses, and valid creditor claims must be paid; and interested parties are to receive certain required information. In a probate, the personal representative is required to notify known creditors; whereas, under trust administration, the trustee may choose to notify known creditors. Further, creditors in a probate, whether known or unknown, have a minimum of four months from the date the personal representative is appointed to present claims. In trust administration, known creditors may be barred after sixty days when properly notified.

The use of trusts in estate planning can be a means of planning for family assets to be passed to future generations in a private and controlled fashion. For this reason, the use of trusts has become a popular estate planning tool.

Reference: Lake County News (July 4, 2020) “Appreciating the differences between probate and trust administration”