You should be aware of all of your options when you are planning your estate. People are sometimes hardwired to the idea that estate planning revolves around a last will. In fact, you don’t have to use a will to arrange for the transfer of your assets, and there are reasons why you may want to choose an alternative vehicle of asset transfer.
One of these would be a revocable living trust. There are those who are under the misguided impression that these trusts are only good for the extremely wealthy, but in fact revocable living trusts can be a good choice for everyday people who have some assets to pass along to their loved ones.
In this post we would like to highlight three things you need to know about living trusts.
One of the primary benefits of living trusts is the fact that they enable probate avoidance. Probate is the legal process of estate administration. There is nothing inherently wrong with probate, but avoiding it can save time and money.
During probate certain expenses accumulate because the executor of the estate must handle all the estate’s business. This can require the engagement of different types of professionals including an accountant, a probate lawyer, an appraiser or appraisers, estate liquidators, etc.
The executor of the estate is entitled to payment, and the court itself actually charges a fee.
Probate can also be quite time-consuming, taking several months at minimum and in complicated cases even years.
Many people do not consider the possibility of future incapacitation, and this is a mistake. Even if there was no other cause of incapacity, Alzheimer’s disease alone makes incapacity planning absolutely essential.
Upwards of 45% of people who are over the age of 80 have Alzheimer’s disease. This disease can make it impossible for people to make sound financial decisions.
If you create a revocable living trust you can name a successor or disability trustee. This individual or entity would be empowered to handle your financial affairs in the event of your incapacitation.
Not a Cure-All
Revocable living trusts are very useful for avoiding probate. They also allow for you as the grantor to account for the possibility of future incapacity.
However, these trusts are not a cure-all. For one thing, they do not do anything to provide estate tax efficiency.
You have control the assets that you conveyed into the trust throughout your life. You can dissolve the trust if you want to and do anything that you want to do with the money.
This may sound like a good thing, but because you retain this control the assets that have been conveyed into the trust are part of your taxable estate.
In addition, assets that have been placed into the trust are not protected from creditors or litigants.