People sometimes think that a will is a simple device that will facilitate efficient asset transfers. By contrast, they may believe a trust is something that is very complicated. In fact, if you want to keep things simple and provide timely inheritances to your heirs, you should definitely consider a living trust.
The Probate Process
When a will is used, the executor cannot act independently. The estate would be opened with the probate court, and this court would provide supervision during the administration process.
A filing fee must be paid, and the executor is entitled to remuneration. In many cases, the executor will bring in an accountant and an attorney, so there are professional fees.
In some instances, asset liquidation may be part of the equation. This means there will be appraisal and liquidation expenses. When you add in the incidentals, it has been estimated that between three and seven percent of the estate will typically be consumed by these probate costs.
No inheritances are distributed until the estate has been probated and closed by the court. In most jurisdictions, that may take a minimum of eight or nine months. Another negative is a loss of privacy. Probate means your financial records are available to the general public.
Living Trust Administration
If you have a living trust, you would act as the trustee while you are alive and well, so you would maintain complete control of the assets. We are talking about a revocable trust. That means you retain the right to amend, modify, even revoke the trust in its entirety. That adds to your ability to control your plan.
When you establish the trust, you would name a successor to administer the trust after your passing. Equally important, your successor trustee is also empowered to assume the role in the event of your incapacity and use trust assets for your care and well-being.
The trustee would follow your instructions when the time comes and distribute the assets to your designated beneficiaries. If your assets are properly re-titled into the name of the trust and beneficiary designations are properly established, probate would not be necessary. The drawbacks we described above would be avoided.
A major benefit of a living trust is the ability to protect a beneficiary that is not prepared to handle a large, lump-sum inheritance. You can include a spendthrift provision in your plan so the beneficiary has no direct access to the principal after your death.
At your death, the trust becomes irrevocable. Without spendthrift safeguards, creditors of the beneficiary could “step into their shoes” and seek recovery of what they are owed. Since the beneficiary would not be able to reach the principal, the creditors would be in the same position.
With regard to the possibility of reckless spending, you can instruct the trustee to distribute a certain amount each month until the beneficiary reaches a certain age. This is one possible arrangement. There are a large number of other options. You have the option of retaining total control of the nature of the distributions.
Shared Living Trust
If you and your spouse own a lot of property jointly, and you intend to leave your respective ownership interests one another, a living trust can be a very simple estate planning solution.
You and your spouse would be co-trustees while both of you are still alive, and the survivor would be the sole trustee. When one spouse passes away, the surviving spouse would become the sole trustee and control the shared property.
Property that is owned separately can also be conveyed into this type of trust. The surviving spouse can be the beneficiary, but this is not required.
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