By Barry Zimmer on August 24th, 2021 in Estate Planning
Some people harbor a misconception about wills, intestacy, and probate. They hear that the probate court would be forced to step in to provide supervision during the estate administration process when someone dies without a will or a trust.
This can lead them to the impression that you avoid probate if you do in fact execute a will. In reality, this is not the case at all. A will would be admitted to probate, and it comes with some significant drawbacks.
Time Consumption
You probably want your loved ones to receive their inheritances shortly after your passing, but this will not happen when a will is admitted to probate. No inheritances are distributed until the estate has been probated by the court, and in most jurisdictions, it will take at least eight or nine months.
Loss of Privacy
Most people keep their financial decisions confidential for a number of different reasons. This would certainly extend to your final affairs, but there is a loss of privacy when an estate passes through probate because the records are available to anyone that is interested.
Inheritance Reductions
There are a number of different expenses that accumulate during probate. These would include a filing fee, accounting charges, legal fees, and appraisal and liquidation expenses. The red ink reduces the value of the estate before it is distributed among the heirs.
Proactive Probate Avoidance Strategy
If you want to avoid these drawbacks, you can implement a probate avoidance strategy that revolves around the utilization of a revocable living trust.
As the name would indicate, you do not have to worry about a permanent loss of access, because you can revoke the trust at any time. Plus, you maintain control of the assets while the trust is active, because you will act as the trustee.
When you are drawing up the trust, you name a successor trustee to assume the role after your passing, and they could also administer the trust in the event of your incapacity. This can be someone that you know on a personal level, but there is another option.
Trust companies and the trust departments of banks provide trustee services. Of course, there is a fee involved, but it can be money well spent when certain circumstances exist.
After your death, the trustee would distribute assets to the beneficiaries in accordance with your wishes. The probate court would not be involved, so the negatives that we looked at in the previous sections would be avoided.
This is one major benefit, but there is another one that can provide a much-needed solution for some families. Let’s say that you have a son that is not very good with money. He has come to you numerous times over the years looking for financial support.
His inheritance will be the last gift that you can give him, and you are concerned about his reckless spending and poor decision-making. If you leave him a direct, lump sum inheritances in a simple will, there would be no safeguards.
The dynamic would be entirely different if you utilize a revocable living trust with a spendthrift provision. After your passing, the trust would become irrevocable, and the beneficiary would have no ability to directly reach the principal.
In a legal context, the beneficiary’s creditors would “step into their shoes.” Since the assets in the trust would be out of the reach of the beneficiary, this would also extend to their creditors.
With regard to spending, you can instruct the trustee to provide limited monthly distributions if you choose to do so.
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