A lot of people assume you should use a last will as your asset transfer vehicle if you are not really wealthy. In reality, this is not the case at all.
A revocable living trust is a very versatile estate planning tool that can be your ideal alternative to a last will. Let’s look at four reasons why you may want to choose this type of trust as the centerpiece of your estate plan…
#1 Probate Avoidance
You may envision a scene that you have seen in a movie or on a television show. After a funeral, people gather at the home of the decedent. Certain individuals are called aside by the executor to be part of the “reading of the will.”
The idea is that the document is read aloud by the executor, and everyone gains an understanding of the wishes of the person who passed away. Once this reading has been completed, you are left with the impression that the executor will follow those instructions right away.
In the real world, things do not work in this manner. Under the laws of the state of Kansas, the will would be admitted to probate. The executor would take care of the hands-on administration tasks, and supervision would be provided by the probate court.
During probate, the court would make sure that the will is in fact valid. Anyone who is interested could contest the will during this process, and this is one of the drawbacks. Yes, contests are sometimes necessary and proper, but this is very rare.
In some instances, someone will come forward to muddy the waters, and this will complicate the proceedings. The last thing the rightful inheritors need is another source of time consumption, because it will take eight months to a year under ordinary circumstances.
No inheritances are distributed during this interim, and that’s a long time to wait for an inheritance. The amount that the heirs receive will be reduced after all probate-related expenses are paid, and this is yet another negative.
If you use a living trust instead of a simple will, you could act as the trustee while you are living, and you would name a successor to take over the role after your passing. When the time comes, the trustee would follow your instructions and distribute assets according to your wishes outside of probate.
Since the probate court would not be involved, all of the drawbacks that we looked but at above would be avoided.
#2 Spendthrift Protections
Generally speaking, the people who are named in a last will would receive direct, lump sum inheritances. This may be a source of concern if you are going to be leaving money to someone who has demonstrated a pattern of financial irresponsibility.
You have other options if you use a living trust. You could include a spendthrift clause that would protect the principal from the creditors of the beneficiary.
It would also be possible to instruct the trustee to distribute smaller amounts over a period of time.
For example, you could allow for distributions of the earnings that are generated by assets in the trust. You could then provide larger lump sum distributions when the beneficiary reaches certain age plateaus.
#3 Incapacity Planning
A significant percentage of elders become unable to make sound decisions at some point in time. When you have a living trust, you can name a disability trustee who would assume this role if it ever becomes necessary.
#4 Streamlined Estate Administration Process
The trustee will step into a turnkey situation when you have a living trust. All or most of the assets will be held by the trust, and this would help the trustee administer the trust efficiently.
To account for assets that were never conveyed into the trust, you can include a pour-over will that would facilitate the transfer of those assets over to the trust.
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