One of the most dangerous misconceptions about getting your affairs in order is the idea that trusts are only useful for very wealthy individuals. This false concept is based on a half-truth.
Indeed, high net worth individuals use rather complicated irrevocable trusts to gain estate tax efficiency. At the same time, the revocable living trust that can be ideal for a wide range of people who are not among the financial elite.
Let’s look at some of the major benefits that living trusts provide.
No Loss of Control
Contrary to popular belief, you don’t necessarily lose control of assets that you convey into a trust. When you have a revocable living trust, you would act as the trustee while you are living. As a result, you would have direct control of the assets every step of the way.
The “revocable” qualifier is quite operative. If you change your mind and decide that you would like to dissolve the trust and take back direct personal possession of the property, you can do so at any time.
Streamlined Estate Administration
Expressing your wishes in writing is one thing, but you should also consider the tasks that must be completed after you are gone to bring these wishes to fruition. If you use a simple will, you would name an executor in the document to act as the administrator.
A lot of people think that the executor would read the will to the people who are named in it and distribute the assets immediately. In fact, the executor would admit the will to probate, and the court would provide supervision during the estate administration process.
The executor will notify creditors about the passing of the decedent, and they are given time to come forward. Final bills would be paid, and the executor would identify and inventory the assets. If anyone wants to challenge the validity of the will, they could make a case during probate.
This process serves a purpose, but there are drawbacks. It will usually take close to a year, and no inheritances are distributed until the estate has been closed by the court. Expenses accumulate, and anyone who wants to find out how the assets were distributed can access probate records.
Whereas, if you use a living trust as the centerpiece of your estate plan, your estate would not have to go through probate. The trustee would be able to distribute assets to the beneficiaries with no court involvement.
Asset Protection and Measured Distributions
Generally speaking, if you use a simple will to direct asset transfers, the inheritors would get lump sums all at once. The resources would be in their hands immediately, so there would be no asset protection or reckless spending safeguards.
When you have a living trust, you can protect assets and custom craft the way that your loved ones will receive their inheritances.
You can include a spendthrift clause in the trust and it would become irrevocable after your death. The beneficiary would have no direct access to the assets, and neither would their creditors.
In the trust declaration, you would name a trustee to succeed you, and you can instruct the trustee to distribute assets in any manner that you choose. For example, you could direct the trustee to distribute a certain amount each month until the beneficiaries reach certain age thresholds.
Account for Incapacity
Cognitive impairment is not uncommon among others, and this is something to face with clear eyes when you are getting your affairs in order. When you have a living trust, you can name a disability trustee who would assume the role if it ever becomes necessary.
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