When you are planning your estate, you should make fully informed decisions. A lot of people think that you should use a will as your primary asset transfer vehicle under almost all circumstances.
In reality, this is not the case at all. We believe a revocable trust is the most effective way to plan your estate, regardless of how large your estate might be. There are a number of different reasons why you may want to use a trust instead of a will. Let’s look at a few of them to provide some insight.
Probate Avoidance
You may think that a will is the simplest way to get property into the hands of your loved ones. Indeed, it may be relatively easy to create the document with the proper legal assistance. However, the matter of estate administration is another story.
You name an executor when you create a will. This person will act as the administrator after you are gone. When the time comes, the executor cannot simply read the will to the interested parties and then start to distribute the assets to the inheritors.
The will would be admitted to probate, and the court would supervise during the administration process. During probate, final debts are paid, and the court examines the will to determine its validity. Assets are identified and inventoried, and they will be prepared for distribution.
This process does not run its course overnight. Creditors are given time to come forward, and it can take time to liquidate assets. No inheritances are distributed while probate is underway, and it will typically take nine months to a year, or more, to complete the process.
Anyone who has an interest can access probate records to find out what transpired, so privacy is lost. It also opens a window of opportunity for challenges to the will that may be presented by disgruntled parties. A challenge would lengthen an already time-consuming process.
If all of this does not sound very appealing, you can simply utilize a revocable living trust instead of a will. When you have a trust, the trustee would be able to distribute assets to the beneficiaries outside of probate, so these negatives would never enter the picture.
Spendthrift Protections
A given individual may not be prepared to handle a significant inheritance received all at once. This is how it works if you use a simple will, but you have options if you have a living trust.
You can include a spendthrift clause in the trust declaration, and it would become irrevocable after your passing. The beneficiary would not be able to directly touch the principal, and the beneficiary’s creditors would “step into their shoes.” They would have no ability to reach the principal because the beneficiary would not have this access.
This is the first level of asset protection, and you can limit the distributions to the beneficiary. You can spread them out over an extended period of time to prevent poor money management. For example, you can instruct the trustee to distribute a certain amount every month.
Nursing Home Asset Protection
About 70 percent of seniors will require long-term care eventually. Over one-third of them will reside in nursing homes. These facilities cost around $100,000 a year in Oklahoma City where we practice. Unfortunately, Medicare does not pay for the custodial care nursing homes provide.
Medicaid is the widely embraced solution because this program does pay for long-term care. As we all know, Medicaid is a need-based health insurance program. You cannot qualify if you have assets in your own name exceeding $2,000.
With this in mind, you could convey assets into an income-only Medicaid trust. This would be an irrevocable trust, so you would not be able to touch the principal.
However, as the name would indicate, you could continue to receive the trust’s earnings as an ongoing source of income. If and when you apply for Medicaid, the principal will not count.
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If you are ready to put an estate plan in place, we are here to help. You can set up a consultation appointment at our Oklahoma City estate planning office by calling us at 405-843-6100. Our Tulsa location can be reached at 918-615-2700, and you can use our contact form to send us a message.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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