When you work with an estate planning lawyer to devise your inheritance plan, you have access to knowledge that you would not have at your disposal if you were to go it alone. Your attorney will explain all of your options to you in detail, and at the end of the day, you can make very important decisions in a fully informed manner. With this in mind, we will look at the value of revocable living trusts in this post.
Last Wills vs. Living Trusts
One of the most common misconceptions that people harbor is the idea that a last will is the right choice if you are not extremely wealthy. They are under the impression that trusts are only useful for high net worth families that have estate tax concerns and complicated objectives. It is true that there are trusts that are beneficial for these people, but there is another type of trust for “the rest of us.”
The estate planning tool that we are referring to is the revocable living trust. One thing to understand about this device is the fact that you are not surrendering access to the assets that you convey into the trust. As the name states, you can revoke it if you ever choose to do so, but that is not the only way that you maintain control.
When you establish a revocable living trust, you name a trustee to administer the vehicle, and you name beneficiaries that can receive monetary distributions. While you are alive, you can serve as the trust administrator and the beneficiary. Though you would be signing assets over to the trust, you would have total control of them. For tax purposes, the actions of the trust would fall to you as the taxpayer, because you are not surrendering incidents of ownership.
You are creating the trust to act as the centerpiece of your estate plan, so you have to consider the events that will take place after you are gone. In the trust declaration, you name a successor trustee to administer the trust after your passing. It is also possible to name a disability trustee to manage the trust if you ever become incapacitated.
When it comes to the choice of a trustee, you have a couple of different options. If you know someone that is willing, you could name an individual to act as the trustee. This being stated, there can be longevity issues and potential conflicts of interest.
Administering a trust can be complicated, and there can be investments to manage. To make sure that the trust is properly administered, you could choose to engage a professional fiduciary. Trust companies and the trust department of banks act as trust administrators, and this can be the right choice for many people.
Now that we have explained the anatomy of a living trust, we can explain the benefits that you gain. If you were to use a last will instead of a living trust, after you die, the executor that you name in the document would be required to admit the will to probate. This is a costly and time-consuming legal process.
It takes about nine months in most cases if not longer, and the inheritors do not receive anything while the estate is being probated by the court. Expenses that accumulate include a filing fee, the executor’s remuneration, legal expenses, appraisal and liquidation charges, and other miscellaneous debits. Money that is spent during probate would have otherwise gone to the people that are named in the last will.
When a living trust is used as an alternative to a last will, the trustee would follow instructions that are left behind in the declaration. Assets would be distributed to the beneficiaries in a direct manner, and the probate court would not be a factor.
Speaking of asset distributions, there is another major advantage that a living trust has over a last will. When you evaluate the people on your inheritance list, you may have concerns about the money management capabilities of a loved one. Even if you feel as though all of the inheritors are responsible, they may not have experience effectively handling large amounts of money.
You can account for this dynamic when you have a living trust. To provide an example, let’s say that you have named two beneficiaries, and you want to provide for them over the long haul. There are invested assets in the trust that typically earn $150,000 annually.
Under these circumstances, you could instruct the trustee to distribute $75,000 to each beneficiary every year, meted out in monthly increments. Many people would stipulate that portions of the principal should be distributed when the beneficiaries reach a certain age.
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These are a couple of the benefits that living trusts provide, but there are other advantages. If you would like to learn more about this option and other estate planning possibilities, download our worksheet. It is being offered free of charge right now, and you can click this link to get your copy.