There are many different legal devices that are used in the field of estate planning. If you execute a particular document, this does not mean that the job is done. A well constructed estate plan will typically include multiple different legally binding documents.
With this in mind, let’s look at the reason why you may want to create a certain type of will, even if you establish a revocable living trust.
If you create a revocable living trust, you convey assets into it. When you are funding the trust, you may not convey everything that you own into it for one reason or another. Plus, over the years, you may acquire additional property that you do not sign over to the trust.
To account for this, you can include a pour-over will when you are planning your estate. This type of will would allow the trust to capture assets that were in your direct personal possession at the time of your passing. When all of the assets are contained within the trust, the consolidation would help to facilitate a smooth trust administration process.
Living Trust Benefits
If you have never considered the possibility of creating a living trust because you assume that a last will would be the right choice, you should understand the benefits. First off, when a will is used to transfer personally held property, it is admitted to probate.
This process will typically take close to a year if there are no particular complications. The heirs to the estate have to wait it out. The executor cannot distribute assets until the estate has been probated and closed by the court.
The time consumption is only part of the problem. Some people who do not consider the possibility of creating a living trust are under the impression that a trust is very expensive to create, but a will is economical. In fact, when a will is admitted to probate, expenses start to pile up.
The court charges a filing fee, and there can be legal and accounting expenses. Since the executor will be putting in a lot of time and effort, he or she is entitled to remuneration. There can be appraisal costs and liquidation expenses as well, and miscellaneous costs will invariably present themselves. All in all, a noticeable portion of the estate could be consumed during probate.
There is another disconcerting prospect to consider if you use a last will. If you maintain direct personal possession of your property throughout your life, and you arrange for its transfer through the terms of a will, you would be allowing for lump sum distributions after your passing. There would be nothing stopping inheritors from squandering their inheritances far too quickly.
All of these pitfalls are avoided if you convey assets that you want to leave to your loved ones into a revocable living trust. You could act as the trustee while you are alive and fully competent, and you name a successor trustee to handle the business of the trust after you pass away. Many people will use a corporate trustee, but you can name someone that you know personally if this is your choice.
The trustee would be able to distribute assets to the beneficiaries after your passing outside of the probate process, so the probate drawbacks would be avoided. Plus, you can include a spendthrift provision.
The trust would become irrevocable at the time of your death, and there would be asset protection for the beneficiaries. In addition to this, when you create the trust declaration, you can instruct the trustee to distribute the resources in a particular manner. For example, you could allow for monthly distributions of the earnings so that the principal can remain intact to produce ongoing income.
This is one example, but the point is that you have control over the way that the assets are distributed. You don’t have to allow for lump sum distributions all at once.
You can also account for incapacitation if you establish a revocable living trust. A successor trustee could be empowered to handle the business of the trust if you ever become unable to make sound decisions on your own.
Attend a Free Seminar
Now that you have a basic understanding of the value of living trusts, you may be interested in the possibility of creating one. If you would like to take the next step, attend one of our free seminars. We frequently offer living trust seminars at various different locations in the greater Indianapolis area. You can visit our seminar schedule page to obtain details and registration information.
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.