There are a number of reasons why you may want to use a trust as the centerpiece of your estate plan. We looked at a few of them in our last post. We will complete the series with three more in this follow-up entry.
Many people believe the estate administration process is very simple and streamlined when you use a will. They see trusts as complicated legal instruments that are difficult to administer.
In reality, this is a misconception. If you use a will to arrange for inheritance transfers, your will would need to go through probate. Your executor would not be able to distribute assets to the people named in the will without court supervision.
Your will would be admitted to probate. The court would supervise the administration process. This is a time-consuming procedure that will take 8 to 18 months in most cases. Your executor cannot distribute any inheritances while it is underway.
According to a study, expenses will shave down the value of an estate between three percent and seven percent. Probate records are readily available to anyone, so there is a loss of privacy. Such sensitive information can potentially damage relationships going forward.
Your creditors will come forward during probate. They will ask the court to pay them before your assets are distributed to your heirs. Your beneficiaries can challenge the will during probate. And the court has to determine the validity of the will.
As you can see, probate is not very positive for the rightful heirs to an estate. You can avoid all these hassles if you use a revocable living trust as your primary asset transfer vehicle.
If you go this route, the trustee you name in the document can distribute assets to the beneficiaries outside of probate. There would be no court involvement, so the pitfalls would be avoided.
When you are in a position to provide a loved one with an inheritance that is large enough to remove their incentive to achieve their full potential, you may have concerns.
This can apply to someone that is very young and undeveloped. It can also stunt the personal and professional growth of more mature adults. If you are in this position, you could utilize an incentive trust to provide guidance.
For example, you can direct your trustee to pay tuition expenses for a beneficiary who has not yet attended college. You can include a larger distribution as a reward for graduation. You can even sweeten the pot for graduate school.
After the beneficiary graduates, you can instruct your trustee to match every dollar that is earned on the job. You can also use this type of trust to try to prevent people from indulging their worst impulses.
These are a couple of ways that this type of trust can be used. You can include any incentives that make sense to you as long as the beneficiary does not have to break any laws.
Protect Your Children’s Inheritances
If you are getting remarried as a parent, you probably want to make sure that your children’s inheritances are protected. You will also need to make sure you have fulfilled your responsibilities to your spouse.
This type of situation can be addressed through the utilization of a legal device called a qualified terminable interest property (QTIP) trust.
The way that it works is you fund the trust, and you name a trustee to act as the administrator. This can be someone that you know personally, but many people use a professional fiduciary. Trust companies and the trust departments of banks provide trustee services for a fee.
If you predecease your spouse, your trustee will distribute the income from the trust to your spouse for the rest of their life. You can give the trustee the latitude to distribute portions of the principal on a discretionary basis.
Your surviving spouse would also be able to utilize assets that are technically owned by the trust. They would not, however, be able to change the terms in any way.
After the death of your surviving spouse, your children would become the beneficiaries. They would receive distributions under the instructions that you set forth when you established the trust declaration.
Schedule a Consultation Today!
Today is the day to put an estate plan in place if you have been placing this important responsibility on the back burner. You can send us a message to request a consultation at our Oklahoma City estate planning office, or we can be reached by phone at 405-843-6100.
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