In a recent post, we pointed out the fact that a living trust is an estate planning tool that provides a number of benefits. However, there are some situations that could be better addressed through the utilization of a different type of trust. We will look at the details in this blog post.
When you use a last will as your asset transfer vehicle, you would be allowing for the distribution of lump sum inheritances to the inheritors. This can be a source of concern if you have someone in the family who is not great at handling money.
To make sure that this individual would have resources to draw from over the long haul, you could create a living trust. While you are alive and well, you could act as the trustee and the beneficiary, so you would continue to control the assets.
You name a successor trustee to take over the trust administration duties after you are gone, and you name a successor beneficiary. It is possible to name an individual that you know personally to act as the trustee, but many people will use a professional fiduciary such as a trust company.
In the trust declaration, you can leave behind specific instructions about the way you want the assets to be distributed to the successor beneficiary. For example, you can instruct the trustee to distribute a certain amount each month.
Another advantage that you gain with a revocable living trust is the ability to account for incapacity. Unfortunately, many elders become unable to handle their own finances eventually, with Alzheimer’s disease being a leading culprit. In the trust declaration, you could empower a disability trustee to administer the trust in the event of your incapacitation.
There is one other major benefit that goes along with the creation of a revocable living trust instead of a last will. The person that administers an estate when a will is utilized is the executor. This individual is not allowed to act independently after the death of the testator.
The will must be admitted to probate, and the court would provide supervision during the estate administration process. Probate is time-consuming, and the inheritors do not receive anything until the estate has been closed by the court. It will typically take about eight or nine months to a year.
In addition to the time consumption, there is the matter of money. Probate is not free by any stretch of the imagination. There is a filing fee that must be paid to the court, and because it is a legal process, an attorney will often be engaged by the executor.
Speaking of the executor, he or she is entitled to payment, and there are typically going to be accounting fees, appraisal charges, and liquidation expenses. All in all, the expenses can add up considerably, and this reduces the amount of the inheritances that will eventually be received.
Another probate drawback is the loss of privacy. You have certainly read about the estate planning decisions of famous people that have passed away over the years. Why is this information available to the general public? The answer is that probate is a public proceeding, so anyone that is interested can access probate records.
All of these pitfalls are avoided when a living trust is used instead of a will. The trustee that is named in the document would be empowered to distribute assets to the beneficiaries outside of probate.
A living trust can be a good choice for a wide range of people, but there are some things that a living trust will not accomplish. Since you can revoke the trust and act as the trustee, you are retaining incidents of ownership when you establish a living trust. As a result of this, the assets would be in play if you were ever sued, and they would be part of your estate for tax purposes.
Many elders seek Medicaid eligibility late in their lives, because Medicare does not pay for long term care. Since Medicaid is a need-based program, there is a $2000 limit on countable assets. Resources that are contained within a living trust would be counted if you were to apply for Medicaid.
There are different types of trusts that can be used to address these objectives. These would be irrevocable trusts, and the optimal course of action will depend upon the circumstances.
If you would like to obtain more detailed information about a number of important inheritance planning topics, the attend one of our upcoming seminars. There is no admission charge, and you can visit our seminar schedule page to get all the details.