People often assume that a last will is the right asset transfer vehicle if you are not a multimillionaire. In fact, this assertion is patently false.
It is true that there are different types of trusts that are used by high net worth individuals that are concerned about the estate tax. This being stated, there are other trusts that can be used by people of relatively ordinary means. One of them that is the right choice for a wide range of individuals is the revocable living trust, and we will explain the benefits in this post.
Consolidation of Assets
Stating your wishes in writing is one thing, but there is a human element. Someone has to follow these instructions and distribute the assets to the heirs in accordance with your wishes after you are gone. In some cases, it can be time-consuming and complicated to inventory all the assets that will comprise an estate.
The matter is simplified when you use a revocable living trust as the centerpiece of your estate plan. You can simply convey your assets into the trust, and the trustee will have easy access to the resources that must be distributed to the beneficiaries.
To account for assets that were never conveyed into the trust, you could add a document called a pour-over will. This would allow the trust to absorb the resources after your passing.
If you use a last will as your asset transfer vehicle, unless it is a small estate, the probate process would enter the picture. The executor that you name in the document would take care of the hands-on probate administration tasks with the assistance of an attorney, and supervision would be provided by the court.
This is a time-consuming and often costly process that will take close to a year if there are no snags, and there are considerable costs that accumulate during probate. It is a public proceeding, so anyone that wants to find out how you distributed your resources could access probate records to get the details.
When you use a living trust as your primary asset transfer device, these drawbacks are avoided. The trustee would be empowered to distribute assets to the beneficiaries outside of the somewhat unwieldy process of probate.
In addition to the idea that trusts are only for the wealthy, there is another misconception that people often harbor. They think that you surrender control of all assets that you convey into any type of trust, but this is not true. A living trust is revocable, so you can dissolve the trust entirely and take back direct personal possession of the assets at any time if you choose to do so.
This is not the only level of control that you maintain. When you establish a living trust, you can act as the trustee while you are alive and well, and you can also serve as the beneficiary. You name successors to assume these roles after you die.
Unfortunately, a significant percentage of elders become unable to make sound decisions at some point in time. There are other causes of incapacity, but Alzheimer’s leads the way. It strikes four out of every 10 people that are 85 years of age and older, and 85 is the standard life expectancy for a 67-year-old man.
If you have someone with money management difficulties on your inheritance list, a revocable living trust can provide you with peace of mind.
You could instruct the trustee to distribute assets to the beneficiary on a limited basis over an extended period of time to prolong the viability of the trust. Plus, you could include a spendthrift clause. This would protect the principal from the beneficiary’s creditors.
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