The last will is the most common estate planning document, and a lot of people think that it is the only logical choice unless you are extremely wealthy. They are aware of the existence of trusts, but they are under the impression that trusts are very expensive to create and unnecessary for the majority of families.
In reality, this is nothing more or less than a widely held misconception. There are trusts that are intended for multimillionaires that are exposed to the federal estate tax, and there are other types of trusts that satisfy different respective complicated aims. We will look at all of them in detail in future blog posts.
Trusts that are used by individuals that have complex estate planning concerns are typically going to be irrevocable trusts that cannot be dissolved or rescinded. There is another type of trust called a revocable living trust that is actually the best choice for a wide range of people that are not among the true financial elite. Let’s look at some of the benefits.
The Probate Process
If you were to use a will to express your wishes regarding the distribution of your assets after you pass away, you would name an executor in the document. This is the person or entity that would act as the estate administrator. The executor would not be permitted to act independently; the will would be admitted to probate, and the court would provide supervision during the process.
Probate serves a purpose, and it is not inherently negative as we have explained in a previous blog entry. This being stated, it does present some difficulties for the people that are in line for inheritances in a few different ways.
Most people would expect to receive their inheritances shortly after the death of the testator, but this does not happen when an estate passes through probate. The typical waiting time will be somewhere in the vicinity of a year if there are no snags, and it can take longer under some circumstances.
Another problem with probate is the cost factor. There are innumerable expenses that accumulate during the process, including court costs, legal fees, compensation for the executor, appraisal charges, liquidation expenses, and incidentals, just to name a handful. These expenditures significantly reduce the inheritances that will eventually be received by the heirs.
Thirdly, if you are like most people, you value your privacy when it comes to your financial decisions. The way that you decide to distribute your assets is a personal matter, and it can be quite sensitive. Probate records are available to the general public, so anyone that wants to access them can find out everything that went on, so privacy is lost.
When a living trust is used as the centerpiece of an estate plan instead of a last will, all of these drawbacks vanish into thin air. The trustee that is named in the declaration would be empowered to distribute assets to the beneficiaries outside of the process of probate.
About 40% of people that are 85 years of age and older have Alzheimer’s disease, and this is not the only cause of incapacity among senior citizens. When you have a living trust, you can act as the trustee while you are alive and well. In the trust declaration, you can name a disability trustee that would manage the trust in the event of your incapacity. This is another advantage.
Though there are exceptions, generally speaking, you would be allowing for lump sum inheritances when you use a last will to direct postmortem asset transfers. This can be a cause for concern if you have someone with money management problems on your inheritance list.
You can account for this when you use a living trust through the inclusion of a spendthrift clause. In the trust agreement, you could instruct the trustee to distribute limited assets to the spendthrift beneficiary over an extended period of time.
They would have no access to the principal, and the principal would be protected from the creditors of the beneficiary (though assets that are distributed to the beneficiary would be within reach of creditors).
Schedule a Consultation Today!
These are three of the reasons why you may want to choose a living trust over a last will, but there are a number of others. If you would like to speak with an attorney from our firm about living trusts or any other matter, we would be glad to accommodate you. There is a contact form on this website that you can use to send us a message, and we can be reached by phone at 310-337-7696.