Many if not most people equate estate planning to the creation of a simple will. This is certainly one way to proceed, and if your situation is very simple and straightforward, you may be able to get by with a will for asset transfers. However, for most families, this is an incomplete solution.
Once you understand the facts, you will understand why you may want to consider using a living trust instead of a will as the centerpiece of your estate plan. Let’s look at some of the benefits that you would gain if you use a living trust instead of a simple will as the cornerstone of your approach.
Estate Administration Realities
The key to this whole equation is the estate administration process. Yes, you can leave instructions with regard to how you want your assets distributed in a simple will. But how will the process actually unfold after your passing?
You can name an executor in the will to act as the administrator, and they will follow your instructions. This is well and good, but people named as inheritors are not the only interested parties.
Many people pass away while they have debts, and it is only fair that the creditors are made whole before the assets are distributed. If there was no oversight, the debts would remain unpaid, and there is another consideration.
What if there are questions about the validity of the will, or the choices that were made by the decedent? A family member may suspect fraud, intimidation, or undue coercion. If there wan no governing body to provide supervision, they would have no recourse.
The Probate Process
For these reasons, a will must be admitted to probate. In New York, probate matters are handled by the Surrogate’s Court. If you use a will to state your final wishes, the executor that you name in the document would present the will to the court, and the probate process would unfold.
Creditors are given time to come forward seeking satisfaction, and the court will examine the will to determine its validity. If an interested party wants to contest the will, they could come forward during probate.
Drawbacks and Limitations
As you can see, probate serves a purpose, but there are inherent drawbacks for the rightful inheritors. First, in addition to the time that is given for creditors to step up, the executor must gather and inventory the assets and potentially deal with appraisals and liquidations.
Final debts, including taxes, will be paid, and all this takes time. At minimum, you are looking at about nine months for the probate process to run its course. More complicated situations can be stalled in probate for longer periods of time.
Secondly, there are considerable expenses that reduce the value of the estate that will eventually be inherited by the heirs. These would include court costs, appraisal and liquidation charges, legal and accounting fees, and other incidentals.
Lastly, probate is a public proceeding. The goings-on are matters of public record, so anyone that has an interest can go through the proper channels to pry into your final affairs. If you value your privacy, this is going to be a red flag.
Additional Considerations
On top of the probate drawbacks, there are additional considerations that go along with the use of a will. To begin with, the inheritors will walk away with lump sum inheritances all at once. This will be a source of concern if you have a loved one who is not good with money.
Even if an inheritor is not necessarily a spendthrift, you may want to provide incremental payouts over time. This can be appropriate if you are leaving an inheritance to someone who is young and inexperienced handling large sums of money.
Revocable Living Trust: Ongoing Control
Now, let’s look at the mechanics of a living trust. To clear up a commonly held misconception, you do not lose control of assets that you transferred to a living trust. This is a revocable trust, so you can dissolve it at any time, and you will act as the trustee while you are alive and well.
You can add or remove property from the trust with no obstacles, and you can change the terms. In a real sense, there is no difference in your day-to-day life when you transfer assets to a living trust, because you can access them as you see fit.
Probate Avoidance
Moving on to the matter of probate, it is not a factor at all if you have a living trust. When you create the document, you name a successor trustee to assume the role after your death.
This trustee can administer the estate after your passing with no court involvement at all. As a result, all of the negatives that go along with probate are avoided.
Spendthrift Protections and Distribution Instructions
Moreover, you can include spendthrift protections when you have a living trust. After you’re gone, the trust will become irrevocable, and the beneficiary you are protecting would have no access to the principal. Their creditors would be in the same position, with no access to trust funds.
You can also dictate the terms of the distributions. For instance, you could have the trustee provide a set dollar amount each month until the beneficiary reaches a certain age. The exact way you proceed is entirely up to you, so there is a lot of flexibility there.
Incapacity Planning
Unfortunately, a significant percentage of seniors become unable to handle their own affairs eventually. You can prepare for this possibility if you have a living trust by giving a successor trustee the power to manage the trust in the event of your incapacity.
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