Avoid Probate Court?

By: Peter R. Certo, Jr. Attorney at law (Estate planning and Probate attorney and, former Dayton Municipal Court, Ohio, Acting Judge)

There are many people, and attorneys, who think avoiding probate court is a good idea. This is most often accomplished through a living, or inter vivos, trust. It is true that sometimes avoiding probate court can be less expensive, quicker and simpler, but sometimes probate court can save all your assets. When a trust is established to avoid probate court a trustee is named in the event of death. People will name a trustee whom they trust. When asked if a bond should be required most clients answer no. A bond is essentially an insurance policy that protects the trust against financial misconduct or stolen money. They say I would not name him/her trustee if I did not trust them. Upon death, the trustee then takes complete control of the assets without any supervision from anyone. Unsupervised trusts can go on for many years. All people have weaknesses, some are not always trustworthy and, others can feel the effects of their own economic pressures. I have been involved in many cases where trustees, those who have complete control of the money, fall prey either to greed, bad financial times, or just are bad at money management. Many times the trustee may "just take a loan" from the trust but loans are not authorized transactions and seldom get repaid. By the time anyone realizes something is wrong, the money is gone and very often it cannot be recovered.

In Ohio a testamentary trust, which is a trust established by a last will and testament, is supervised by the probate court. A living or inter vivos trust is not supervised by the court. The testamentary trustee is required to file a written accounting, along with copies of bank statements, every year. The court will also examine the distributions and expenses to make sure the trust assets are being properly administered by the trustee. If an accounting is not filed when due, the probate court will order the trustee into court. If they fail to appear the probate judge has the authority to send the county sheriff and serve them with contempt proceedings. In addition, if a bond is required to be filed, and money is missing, the bonding company will pay the missing funds back to the trust. Without probate court supervision, compelling the trustee of a living trust to do anything can be difficult. Usually an attorney needs to be retained to pursue the trustee. If the attorney is unsuccessful in getting answers from the trustee then a lawsuit against the trustee needs to be filed.

Just recently, I had the misfortune of investigating an attorney who served as a trustee. This attorney was well known in the community and had worked for the family for 14 years. The beneficiaries were asking questions but getting no answers. After I began investigating I found the trustee had stolen about $400,000 and had been hiding the theft for years. Fortunately a bond was in place, as ordered by the probate court, and I was able to recover all the stolen money for my clients. Had the probate court not been involved, there would have been no money left to recover and it would have been a total loss for my clients.

It may sound good to avoid probate court, but the end result could be disastrous.