If you are under the impression that you should use a will as the foundation of your estate plan, you should understand some differences between a will and a living trust.
Drawbacks and Limitations
When a will is used, your heirs will receive lump-sum bequests. Creditors or litigants that have judgments against an heir can sweep right in and go after their inheritance.
Plus, a person that spends too freely would have free reign to burn through the money without any guidance or restrictions.
Another negative is the probate process. A will must be admitted to probate, which is a court-supervised proceeding that will take at least nine months to run its course. No inheritances are distributed while the estate is being probated by the court.
In California, statutory probate fees are based on the gross value of the estate and are as follows: 4% on the first $100,000; 3% on the next $100,000; 2% on the next $800,000; 1% on the next $9,000,000; 0.5% on the next $15,000,000. Click here to use our handy Probate Calculator.
Probate is also part of the public record, which means that anyone that has an interest can access probate records to find out the details, including who the heirs are and how much they are inheriting.
The situation is entirely different if you have a living trust. You would act as a trustee while you are living, so you would not lose control of the assets. A spendthrift clause could be included that would protect the assets from the beneficiary’s creditors after you pass away.
You would control the nature of the distributions, so you could instruct the trustee to distribute limited assets on a monthly basis, or you could set up some other arrangement.
These are all positive features, and another major benefit is the complete avoidance of probate. The court would not be a factor, so the distributions would take place in a timely and efficient manner.
Now that we have provided the necessary background information, we can look at the role of the trustee. As we stated, you would be the trustee while you are alive and well, and you would name a successor to assume the role after your passing.
The trustee will be required to handle many different administrative tasks, and there are procedural steps that must be taken. They will obtain copies of the death certificate and notify the State Health Department and the Social Security Administration.
Beneficiaries must be identified and notified, and the trustee will obtain a Taxpayer Identification Number and open a trust bank account. Final debts will be paid, and the assets will be identified and protected by the trustee.
If the living trust is going to remain intact to provide distributions over an extended period, the role of the trustee will be an ongoing one.
Technically, any mentally competent adult that is willing to assume the role can act as a trustee, but you have to know someone that has the right qualities. Another option would be the utilization of a professional fiduciary like a trust company.
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