There are different types of asset transfer vehicles that can be used in the field of estate planning. The most commonly used estate planning document is the device called a last will or last will and testament.
With a last will, you are stating your wishes regarding property that was in your sole and direct personal possession at the time of your passing. In your will, you name an executor to administer your estate after you are gone. After you pass, the executor would admit the will to probate, and the court would supervise the administration of the estate.
The court would examine the will to make sure that it is valid. Final debts would be paid during probate, including taxes. Ultimately, if everything was in order, the executor would prepare the assets for distribution to the heirs that are named in the last will.
When the estate is closed by the court, the executor would be empowered to distribute the resources to the inheritors in accordance with the terms that are recorded in the will.
The Revocable Living Trust
Things are different with trusts. At the outset, we should point out the fact that you can use a revocable living trust, and there are irrevocable trusts. First, let’s look at how revocable living trusts differ from last wills.
If you establish a revocable living trust, you are called the grantor of the trust. The person or entity that administers the trust is called the trustee. As the grantor of the trust, you can act as the trustee while you are alive and well.
The beneficiaries are the individuals who can receive distributions from the trust. Once again, you can act as the beneficiary while you are living. You want the trust to serve as an estate planning device, so you name a successor trustee to administer the trust after you pass away, and you name successor beneficiaries who will receive monetary distributions.
One major difference between a revocable living trust and a last will is the matter of probate. The successor trustee could distribute resources to the successor beneficiaries outside of the probate process after your death.
This is a positive, because probate can be quite time-consuming. Even if things are relatively simple and straightforward, it will take eight or nine months to a year in most areas. There are also expenses that accumulate during probate.
Another difference would be the ability to include spendthrift protections. If you allow for lump sum distributions through the utilization of a last will, a spendthrift heir could burn through his or her inheritance recklessly. As a result, this individual could have nothing to draw from later on.
With a revocable living trust, you can leave behind instructions that the trustee would be compelled to follow regarding the nature of the asset distributions. For example, you could allow for monthly distributions of a certain amount for an extended period of time. Plus, the trust would become irrevocable after you die. As a result, there would be asset protection from the beneficiary’s creditors. Conversely, when you convey assets into a revocable living trust, they are not protected from your creditors while you are living
With a living trust, you can also account for latter life incapacity. Many elders become unable to handle their own decision-making at some point in time, so you could empower a disability trustee to administer the trust in the event of your incapacitation.
Trusts that are irrevocable can satisfy different objectives. Irrevocable trusts are used by high net worth individuals who are exposed to estate taxes. There is a federal estate tax that is applicable on asset transfers exceeding $5.45 million, and the top rate is 40 percent. Here in Connecticut where we practice law there is a state-level estate tax that could have an impact as well, and the state-level exclusion is just $2 million at the present time.
There are also irrevocable trusts that can benefit a loved one with a disability without causing a loss of need-based government benefits like Medicaid and Supplemental Security Income.
These are a few of the reasons why you may want to use a trust of some kind instead of a will, but there are others. The optimal asset transfer strategy will vary depending upon the circumstances.
Attend a Free Seminar
If you are interested in the possible creation of a revocable living trust, attend one of our upcoming seminars. The seminars are free to attend, and you can get all the facts if you sit in on one of the sessions. To see the schedule, click this link: Hartford, CT Estate Planning Seminars.
- How Do You Leave an Inheritance to Minor Children? - March 28, 2023
- These Celebrity Estate Planning Mistakes Can Be Instructive - March 9, 2023
- Is There a Person With Special Needs on Your Inheritance List? - February 21, 2023