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A revocable living trust holds property and other assets that you transfer to it and can be changed or rescinded during your lifetime, whereas the terms and conditions of an irrevocable trust generally cannot be altered once you create the trust. While assets in a revocable living trust avoid probate, the assets are considered part of your taxable estate.
Probate proceedings conducted in a different state from the deceased person's legal state of residence. Ancillary probate proceedings generally are held if the deceased person owned real estate in another state.
While jointly owned assets more typically are held with rights of survivorship, sometimes they are jointly held instead as tenants in common. In this situation, your share of the assets passes to your heirs according to your will or the laws of your legal state of residence and not automatically to the surviving joint owner(s) of the assets.
Community property states are states in which some or all of the assets earned and accumulated during your marriage may be deemed to be "community property," regardless of title. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
A court-supervised process beginning after your death to determine the validity of your will and monitor the execution of its provisions. Assets that would go through probate typically are those that you own individually (or as a tenant in common) and for which there are no beneficiary designations. Assets owned as joint tenants with rights of survivorship, with beneficiary designations, or titled in the name of an existing trust are designed to pass to others directly outside of your will and the probate process.
You designate beneficiaries when you choose individuals or organizations to take specified assets upon your death. Assets with beneficiary designations may include IRAs, employer-sponsored retirement plans, life insurance, and annuity contracts. A beneficiary designation for an asset overrides any provisions in your will concerning the asset, as long as the beneficiary survives you. To establish beneficiary designations, you typically complete a form provided by the institution that holds the account or policy.

An asset you own by yourself and for which you have not designated a beneficiary passes to your heirs according to your will (i.e., according to your own terms and conditions). Assets that you owned by yourself that you then titled in the name of your revocable living trust pass to your heirs according to the terms of the trust agreement. If you die without a will or trust, these assets pass according to the laws of your state of legal residence. If you own real property (and sometimes personal property) in another state, that state's law also may apply to the property and would likely enter ancillary probate after your death. State laws may or may not pass your assets to the heirs you intended.

Your share of any assets titled as tenants in common or owned as community property would likely be subject to your will and/or state's probate distribution laws as well.

The main advantage of owning assets by yourself is that you can direct in your will how the assets are to be distributed and/or managed in the future. Leaving assets to someone by beneficiary designation, for example, with no instructions on how they should be managed could lead to problems for the individual(s) inheriting them.

To deal effectively with assets that will not pass to others automatically at your death, it is crucial to have a valid, up-to-date will that is clear and deliberate in communicating your intentions for the distribution of your estate.

Copyright 2014, T. Rowe Price Investment Services, Inc., Distributor. All rights reserved.