There are many different tools in the estate planning toolkit. People who have not looked into the subject extensively often assume that they should use a last will as an asset transfer vehicle, but there are inherent drawbacks and limitations when you use a last will.
For many, a revocable living trust would be a better choice, and you may be rather surprised when you learn about the living trust benefits that you can take advantage of if you go this route.
Debunking the Myths
There is a myth that circulates with regard to trusts. Many individuals are under the impression that trusts are only used by very wealthy people. It is true that there are trusts that are used by high net worth families, but a revocable living trust can be useful for people of relatively ordinary means.
In fact, a revocable living trust would not be a good choice for very wealthy people who are exposed to the estate tax. The federal estate tax is a factor if your estate exceeds $5.45 million in value.
Another myth is the notion that you surrender all personal control of assets that you convey into any type of trust. This is certainly not the case with a revocable living trust. Look at the name of the trust: You can revoke or dissolve the trust at any time if you choose to do so. The assets would once again be in your direct personal possession if you revoke the trust.
You will probably never want to revoke the trust, because you are creating it as the centerpiece of your estate plan. However, you retain absolute control of the trust while it is intact, because you can act as the trustee throughout your life. You would control the actions of the trust in every way.
Living Trust Benefits
Living trusts provide many benefits from an estate planning perspective. First off, many elders become incapacitated late in their lives. There are multiple different causes of incapacity as we all know, but Alzheimer’s disease is the leading threat. This disease strikes close to half of people who are at least 85 years of age.
When you create a living trust, you name a successor trustee to administer the trust after you pass away. It would be possible to empower this successor trustee to administer the trust in the event of your incapacitation as well.
If you want to, you could actually name one person or entity as the disability trustee, and another successor trustee to administer the trust after your passing.
In addition to the incapacity planning benefit, you can also protect spendthrift heirs. When you create the trust declaration, you could leave behind instructions that the trustee would be compelled to follow regarding the way that you want the assets distributed.
One common course of action would be to allow for distributions of the earnings from the trust on a monthly basis. You could give the trustee the discretion to distribute portions of the principal when certain circumstances exist. Many people will provide for lump-sum distributions when the beneficiaries reach certain age plateaus.
Plus, when it comes to protections, the trust would become irrevocable after you pass away. As a result, there would be a layer of asset protection if creditors were to seek satisfaction from the beneficiary.
A last benefit that we will look at here is a very significant one. If you were to use a will instead of a trust to state your final wishes, it would be admitted to probate after you die. The probate court would supervise the administration of the estate. This process can take close to a year, even if there are no particular complications. The heirs would receive nothing during this interim.
With a revocable living trust, the probate process is not a factor. The trustee would be able to distribute assets to the beneficiaries in accordance with your wishes outside of probate.
Schedule a Consultation
Living trust benefits can be significant when certain circumstances exist. We have provided a basic outline in this brief blog post, and it may have piqued your interest. If you would like to take things a step further, our firm would be glad to help.
We offer no obligation consultations to people here in the greater Indianapolis area, and we can get to know you, gain an understanding of your objectives, and help you put a plan in place if you decide to go forward.
To schedule an appointment, send us a message through our contact page or call us at (317) 684-1100.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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