A lot of people that have not looked into the subject of estate planning very thoroughly harbor some misconceptions. They have heard about the existence of trusts, but they assume that they are only useful for very wealthy families. To these folks, a last will is the only logical choice.
It is true that there are irrevocable trusts that are used by high net worth individuals that are exposed to estate taxes. There are other types of specialized trusts that can be the right choice under certain circumstances, even if the person creating the trust is not a multimillionaire. These would include special needs trusts and Medicaid trusts.
The above being stated, there is a versatile estate planning tool called a revocable living trust that can be a very viable alternative to a last will. Living trusts offer a number of different benefits, and we will look at them in this blog post.
Consolidation of Assets
The ability to consolidate the assets that comprise your estate is a major advantage. When everything that you are passing along is in the trust, the trust administration process is streamlined. This will serve the beneficiaries well.
Even if you make an effort to consolidate all of your resources in the trust, you may still have some assets in your personal possession at the time of your death for one reason or another. To account for this, you can include a pour-over will. This would allow the trust to absorb the resources that were never conveyed into it.
You may not feel entirely comfortable leaving a large, lump sum inheritance to a loved one. This is what would happen if you use a last will. Things are entirely different with a revocable living trust. It would be possible to instruct the trustee to distribute assets to the beneficiary on an incremental basis over an extended period of time. For example, you could instruct the trustee to distribute the earnings from assets in the trust that are appreciating on a monthly basis.
Unfortunately, a very significant percentage of elders become unable to make sound decisions at some point in time. There are various different underlying causes of incapacity, but Alzheimer’s disease is unquestionably the biggest culprit. It strikes about 13 percent of all senior citizens, and the number swells to 40 percent among people that are 85 years of age and older.
If you were to establish a revocable living trust, you would act as the trustee while you are alive and well. You could add a disability trustee to administer the trust in the event of your incapacity. This could be the successor trustee that will administer your trust after you die, but it could be someone else–it is your choice.
If you were to utilize a last will as your principal vehicle of asset transfer, you would name an executor or personal representative to administer the estate after you are gone. This person would not be allowed to go about the administration tasks in a vacuum. The will would be admitted to probate, and the Surrogate’s Court would supervise the administration of the estate.
There are some serious drawbacks that go along with the probate process. First, it is very likely that you want your heirs to receive their inheritances as soon as they possibly can after you are gone. When probate enters the picture, the inheritors have to play a waiting game. A simple, straightforward case can pass through probate in eight or nine months to a year, but it can take considerably longer when there are complications.
Speaking of complications, another pitfall is the fact that probate opens a window of opportunity for disgruntled parties that may not be happy with the terms of the will. A will contest can be initiated during probate, and this is one of the complications that can bog down the process.
Probate is not free, and this is another major negative. The court charges a filing fee, and the executor is entitled to payment for his or her time and effort. In many cases, the executor will bring in a probate lawyer, so there are legal fees to contend with as well. When you add in appraisal and liquidation charges and other incidentals, you are looking at a significant amount of money that is lost during the probate process.
When a revocable living trust is utilized instead of a last will, the trustee that is named in the document can distribute assets to the beneficiaries free of the probate process. As a result, all of these drawbacks are avoided, and this is perhaps the biggest reason why you may want to consider a living trust instead of a last will.
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