In a previous post, we looked a few different types of asset transfers that organically take place outside of the probate process. We did not explain why probate is something that you may want to avoid because this is a two-part series on this very important piece to the estate planning puzzle.
Before we look at the drawbacks of probate, we should emphasize the fact that it is not inherently negative, and it serves a purpose. It would not be fair for the people named in a will to receive their inheritances if the decedent had outstanding debts. Creditors must be notified during probate, and they are given an opportunity to come forward seeking satisfaction.
This is one of the purposes of probate, and there is also a proving of the will. The court examines the document to make sure that it was executed properly. If anyone wants to come forward to contest the validity, they would be allowed to do so during probate.
Though these safeguards are understandable, the process is not necessarily positive for the rightful inheritors. First off, there is a waiting game that must be played. It will usually take about nine months to a year for probate to run its course, and no inheritances can be distributed during this interim.
Probate is not free by any stretch of the imagination. There are court costs and potential legal fees, accounting charges, liquidation and appraisal expenses, and other incidentals. In a real sense, the money that is spent during probate comes out of the pockets of the heirs that are named in the will.
You may have read about the way that celebrities that have passed away distributed their resources. Did you ever wonder why this information is available? The press can access the details because probate records are available to the general public. If you are like most people, you value your privacy, so this is another negative.
Revocable Living Trust
If all of these pitfalls do not sound very appealing, you can avoid them if you utilize a revocable living trust as the centerpiece of your estate plan instead of a last will. You don’t have to worry about losing control of the assets, because you can act as the trustee and the beneficiary while you are alive.
In the trust declaration, you name successors to assume these roles after you pass away. After you are gone, the trustee would be empowered to distribute assets to the beneficiaries outside of probate. As a result, the drawbacks that we have looked at are avoided.
The probate avoidance facet is just one of the benefits of a living trust. Unfortunately, a high percentage of elders become unable to handle their own affairs eventually. To account for this, you could name a disability trustee to administer the trust in the event of your incapacity.
Another nice thing about a living trust is the ability to include spendthrift protections. You could add a spendthrift clause that would prohibit the beneficiary from directly accessing the principal. The trustee could be instructed to distribute assets to the beneficiary on an incremental basis over an extended period of time to prolong the viability of the trust.
Creditors of the beneficiary would not be able to go after the principal, and this is another level of protection that can give you peace of mind if you have a spendthrift in the family.
When you have a living trust, you streamline the estate administration process. The fact that probate would not be a factor is part of this equation, and when all the assets that comprise the estate are owned by the trust, it makes the trustee’s job that much easier.
It should be noted that you can add a pour over will that would allow the trust to absorb assets that were in your personal possession at the time of your passing.
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