To understand the context of the question that serves as the title of this blog post, you have to digest some background information about probate. The most widely utilized vehicle of asset transfer in the field of estate planning is the last will. Many people assume that a last will is the ideal choice, because it is a simple method to get assets into the hands of your loved ones after you are gone.
In fact, it is not as simple as it may seem to be on the surface. If you were to execute a last will, you would name an executor in the document to serve as the estate administrator. This individual would not be allowed to distribute assets to the inheritors right away.
There are various tasks that must be completed by the executor during probate, the exact nature of which will depend upon the specifics of the estate. In a perfect world, a very simple case could potentially pass through probate in about nine months, but it will often take considerably longer. Often, the heirs cannot receive their inheritances until the court has closed the estate.
Another one of the probate drawbacks is the monetary factor. There are innumerable expenses that accumulate during probate, including a filing fee, the executor’s payment, attorney fees, and appraisal and liquidation expenses. Publication and bond fees also are a factor in many probates. These expenditures reduce the amount of the inheritances that will eventually be received by the people that are named in the will.
The last probate drawback that we will look at here ties into the overarching subject of this post. Should anyone want to challenge the validity of a last will, they could come forward during the probate process and present their case before the court. It is relatively simple and inexpensive to do this, so probate provides an ideal opportunity for disgruntled parties.
Revocable Living Trusts
If you are concerned about the potential for an estate challenge, a revocable living trust would be a better choice than a last will. One of the primary benefits to be gained through the creation of a living trust is the fact that assets would be distributed outside of the process of probate.
After you die, if someone that is receiving an inheritance through the terms of the trust is not happy with the arrangement, there would be no actively engaged court to approach. This window would be closed, but the person could file a lawsuit.
When you establish the trust, you could include a no contest clause. This would trigger the disinheritance of any beneficiary that contests the terms of trust.
If a lawsuit is filed, the no contest clause would kick in, and the litigant would no longer be entitled to receive distributions from the living trust. This is one disincentive, but in addition to the potential disinheritance, it is costly to hire an attorney to file this type of lawsuit when there is no guarantee of a victory.
This is one benefit that is gained through the utilization of a living trust, but there are others. The expenses and time consumption that go along with probate would be avoided, and the terms of the trust would be kept private. Conversely, probate records are available to the general public, so anyone that is interested could find out how your property was distributed.
Another advantage is the consolidation of all the assets in one place, because this makes it easier for the trustee to administer the estate. You also have the ability to provide specific instructions with regard to the way that you want the assets to be distributed to the heirs.
For example, if you choose to do so, you could instruct the trustee to distribute limited assets on an incremental basis over an extended period of time.
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