When you are making investments throughout your life, you do not make snap judgments. Clearly, you worked hard for the money that you have to invest, and you want to be sure that you are making the right decisions. This mentality should also be applied to the estate planning process.
You would certainly do research before you decide to make an investment, and you should also look into your estate planning options so that you can make the right choices.
If you do take some time to examine the estate planning tools that are out there, you may find that a revocable living trust is an appealing choice. These trusts are very effective when certain circumstances exist. Let’s look at five reasons why you may want to use a living trust as your primary asset transfer vehicle.
1.) Probate Avoidance
A lot of people feel as though a last will is the best estate planning device for people who are not extraordinarily wealthy. In reality, this is not necessarily true.
When a will is used, there are some estate administration hurdles that must be crossed before the estate can be distributed among the heirs. The executor or personal representative would admit the will to probate, and the court would supervise.
This process will take close to a year even if things go very smoothly, and there are also expenses that accumulate during probate. Assets in a living trust could be distributed outside of probate, so this is one major benefit.
2.) You Have Flexibility
With a living trust, you have a lot of flexibility. A living trust is revocable. If you ever want to dissolve the trust entirely and take back direct personal possession of the property in the trust, you could do so. You could also act as the trustee and the beneficiary while you are living, and you name successors to assume these roles after you are gone.
After you create the living trust, you can convey property into it at any time, and you can change the successor beneficiary or successor trustee designations, so things are not permanently etched in stone.
3.) You Can Account for Incapacity
Once you become old enough to collect your full Social Security benefit, it is likely that you will live into your mid-eighties and perhaps beyond. A very significant percentage of people who reach an advanced age become unable to handle their own financial affairs. Alzheimer’s induced dementia is a leading cause of incapacity, but there are others.
When you create a revocable living trust, you could empower the successor trustee to administer the trust if you ever become incapacitated, and this is another positive feature.
4.) Measured Distributions
When a will is used as an asset transfer device, the people who are named in the will as inheritors receive lump-sum bequests all at once. Everyone is not a great money manager, and someone who is not necessarily irresponsible with money may not be prepared to handle a significant windfall.
If you were to establish a revocable living trust, you could leave specific instructions that the successor trustee would be compelled to follow with regard to the nature of the distributions to the beneficiaries.
For example, let’s say that you have conveyed income producing assets into the living trust. You could instruct the trustee to distribute the earnings from the trust to the beneficiaries. The principal could remain intact, but you could give the trustee the discretion to distribute portions of it under certain circumstances.
This is one potential scenario, but the point is that you decide how you want the assets to be distributed to the beneficiaries.
5.) Asset Protection
You retain incidents of ownership in legal parlance when you establish a revocable living trust, because you have the power of revocation. Since you could take back the assets at any time, they would not be protected if there was a legal judgment against you.
However, after your passing, the trust would become irrevocable. A spendthrift provision would provide asset protection for the beneficiaries.
Attend a Free Estate Planning Seminar
If you have reached our website, you are looking for information about estate planning as a Hartford, Connecticut resident. We regularly get out into the community offering estate planning seminars, and you can learn a great deal if you attend the session that fits into your schedule.
The seminars are free to attend, but we do ask that you register in advance, because space is limited and the seminars fill up quickly. To get all the details, visit our seminar schedule page.