A simple last will is considered by many to be the estate planning tool of choice for people who are not very wealthy. In fact, this is not necessarily the case.
You have limitations when you use a will. Lump sum distributions would be distributed to the heirs, and this can be a source of concern if you have people in the family who are not great money managers. Plus, the inheritances would be fair game if anyone on your inheritance list was to be the subject of a legal judgment.
The probate process is another fly in the ointment. A will is admitted to probate, and the people who are in line for inheritances must wait it out. Probate will take close to a year even if things go smoothly. There are also probate expenses that reduce the inheritances that will eventually go to the heirs.
The utilization of a trust can facilitate probate avoidance, and you can include spendthrift protections. Let’s look at the facts.
Some people think that you surrender complete control of assets that you place into any type of trust. They go forward with this assumption, and as a result they ignore the possibility of creating a trust.
Do you lose control of assets that you place into a trust? This is going to depend on the type of trust that you are utilizing. Let’s look at revocable living trusts.
Revocable Living Trusts
Revocable living trusts are commonly used by people who want to avoid probate. As we touched upon previously, probate is a potentially costly and time-consuming legal process. If you use a last will to arrange for the transfer of your personally held property, the distributions will not take place until after the estate has been probated.
If you convey assets into a revocable living trust, these resources would be distributed to the beneficiary or beneficiaries who you name in the trust agreement outside of probate. As a result, they would receive their inheritances in a much more timely manner.
When you place assets into a revocable living trust, you can act as both the beneficiary and the trustee while you are still living. As such, you continue to control the resources. You can manage investments and take distributions.
In addition to this, the trust is revocable. You could rescind the trust at any time. Short of this you may change the terms of the trust at will.
After you pass away, the trust would become irrevocable, and a spendthrift provision could provide protections that would not be available if you use a last will as your asset transfer vehicle.
There are other types of trusts that are irrevocable from the start. One of the reasons why trusts are often looked upon as instruments that are only useful for the wealthy is because irrevocable trusts are used to mitigate estate tax exposure.
If your assets do not exceed $11.58 million in value, you don’t have to worry about the federal estate tax. Anything that you want to transfer that does exceed this amount would potentially be subject to the tax.
The utilization of an irrevocable trust of some kind could be part of a wealth preservation plan. Assets that have been conveyed into this type of trust may not be counted as part of your taxable estate.
In addition to the tax efficiency objective, there are irrevocable trusts that can satisfy different estate planning goals.
Wills vs. Trusts: The Final Analysis
People sometimes make estate planning decisions without having all of the facts. Contrary to popular belief, you don’t lose control of assets if you place them into the right kind of trust. Given the fact that probate will slow things down if you use a will, you may want to consider a revocable living trust to facilitate a more timely transfer of assets.
Plus, as we have stated, there are different trusts that can be utilized by people who have more advanced estate planning objectives. A revocable living trust is not your only option.
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We make a concerted effort to provide educational opportunities to people in and around Overland Park. You can find many different reports and other resources on this website, and we urge you to explore each and every section.
In addition to the information that we share here, we also offer workshops and webinars that cover many different important estate planning and elder law topics, including the wills vs. trusts equation.
Visit our workshop schedule page to obtain more details and registration information.