We speak with a lot of people that have inheritance planning questions, and we find that many of them share the same concerns. It is possible to provide some basic principles in a relatively brief and concise manner. As a result, we have decided to create a blog post that simulates a typical conversation that we would often have with a client.
Just about everyone should use a last will as an estate planning centerpiece, right?
This is actually the most widely held misconception within the realm of estate planning. It can seem like a very simple, straightforward document that facilitates effective transfers quickly and efficiently. In fact, this is not the case at all.
Can you elaborate on that answer?
There are those that assume that the executor that is named in a last will can read the contents to the people that are named in it, liquidate some assets, and distribute them to the inheritors. Though this may make sense on the surface if you are a layperson, there are actually many tasks that must be completed before bequests are handed out.
A will is admitted to probate, and the court supervises the administration process. Final debts have to be paid, so creditors must be notified, and they are given a certain period of time to come forward seeking satisfaction. In addition to private debts, final taxes must be paid during probate as well.
Clearly, there is nothing wrong with paying rightful debts, but the procedural way that this is done is quite time-consuming. In many instances, it will take a year or more for the people that are in line for inheritances to receive their bequests. The process can take much longer when extenuating circumstances present themselves, like a will challenge.
The necessity to go through probate is one drawback that goes along with the utilization of a last will as a primary asset transfer vehicle, but there are others. Plus, there are more opportunities for flexible, creative planning if you use a different device.
Which estate planning tool would be a good alternative to a last will if you are not extremely wealthy?
For most people, the optimal choice would be a revocable living trust. First and foremost, when a living trust is used, the distributions can be made by the trustee outside of probate. And speaking of the trustee, if you create this type of trust, you lose no control. You can act as the trustee and the beneficiary initially when you establish a revocable living trust.
It is easy to convey property into the trust after you have created it, and you have the total power to remove assets from the trust at any time. You can also change the terms of the trust, so there is a great deal of flexibility.
The ultimate point of the trust is to facilitate asset transfers to your loved ones after you are gone. To this end, you name your heirs as beneficiaries, and you name a trustee to assume the role of trust administrator when the time comes.
The trustee can be someone that you know personally, or it can be a professional corporate trustee like the trust department of a bank or a trust company. Though there are expenses involved, many people will choose the latter option, because you have professional investment management and expertise when it comes to the procedural aspects of trust administration.
With a living trust, you can include spendthrift protections, and you can name a disability trustee to administer the trust if you ever become incapacitated. Plus, all of the assets that comprise the estate are consolidated in one place as it were.
If you do have a living trust, what happens to assets that you never conveyed into it?
The way that you address this matter is through the inclusion of a pour over will. With this type of will, the trust would ultimately assume ownership of any assets that remain outside of it, but the probate court would be involved during the transfers.
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