A living trust is the ideal estate planning tool for many people, and when you understand the benefits, you can see why they are so popular. We will provide a rundown here, and we will address the matter of assets that may have been left out of your living trust.
Efficient Estate Administration
If you use a simple will to serve as your asset transfer vehicle, you would name an executor in the document, and it would be admitted to probate after your death. This is a time-consuming legal process that will take typically take at least nine months to run its course.
No inheritances are distributed while the estate is being probated, so the time lag is problematic for the heirs. Probate expenses reduce the value of the estate, and the records are available to the general public, so there is a loss of privacy.
When a living trust is utilized, these difficulties vanish. You would act as the trustee while you are alive and well, and you would name a successor to assume the role after your passing.
When the time comes, the trustee would distribute assets to the beneficiaries, and the probate court would not be involved.
Control of the Distributions
Unless you include a testamentary trust, the inheritors will receive their bequests in lump sums after the estate is probated if you use a will. This may not be consistent with your wishes if you are leaving resources to family members that are not ready to handle them.
These concerns can be assuaged through the utilization of a living trust. You can include a spendthrift clause, and the trust would become irrevocable after your passing. The beneficiaries would not be able to access the principal, and this dynamic would extend to their creditors.
This would provide a core level of asset protection, and you can set the terms with regard to the nature of the distributions. For example, you could instruct the trustee to distribute the trust’s annual earnings broken up into monthly increments, or you can set a particular dollar amount.
Many people will include these safeguards and allow for larger distributions when the beneficiaries reach certain age thresholds. The exact details are up to you, but you can make sure that your loved ones do not squander their inheritances when you have a living trust.
Assets Left Out of the Trust
If you have a living trust and no other estate planning document, and you have assets in your direct personal possession at the time of your death, the transfer would be subject to probate.
Obviously, you can prevent this by making sure that all the assets that comprise your estate are titled to the trust, but you may fall short of the mark. To account for this, you should include another estate planning document called a pour-over will.
This would allow for the distribution of the outstanding assets through the terms of the trust, but the probate court would be involved.
In our state, there is another possibility. A Heggstad petition, which is based on California Probate Code 850, can be filed with the court if the circumstances warrant it.
This would be a request to move the assets into the trust under the contention that this would be consistent with the decedent’s true wishes. If you have a pour-over will, it would help, because it would signal your intentions.
The court can decide on a Heggstad petition in about 60 days, which is considerably shorter than the duration of the full probate process.
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