Many people think that estate planning is a very simple matter. When you are senior citizen, you record your final wishes in a last will, and that’s the end of the story.
In reality, this is a gross oversimplification on a couple of different levels.
First, estate planning is one of the core responsibilities of adulthood. You should put your estate plan in place as soon as you have other people depending on you for financial support. In fact, it can be argued that it is even more important for younger adults that still have dependent children.
Secondly, there are many good reasons why you may want to use a trust as the centerpiece of your estate plan, even if you are not extremely wealthy.
Last Wills and Estate Administration
If you use a last will as the centerpiece of your estate plan, you would name an executor in the document to act as the administrator. The executor would not be allowed to act independently after your passing if you go this route.
Under the laws of our state, the will would be limited to probate, and the court would provide supervision during the estate administration process. During probate, the assets would be inventoried and prepared for distribution, and final debts would be paid by the executor.
This is a costly and time-consuming process, and the inheritors do not receive anything while it is underway. It will typically take eight or nine months to a year even if the case is not complicated in any way.
In addition to the probate drawbacks, a will would facilitate direct, lump sum asset transfers if there is no testamentary trust added. This may not be consistent with your wishes if you have someone on your inheritance list that is not good with money.
It is also an inefficient process from an administrative perspective. There would be separate ownership documents for property scattered about, so it can take considerable effort for the executor to get everything in order.
Revocable Living Trust
The type of trust that is most widely utilized is the revocable living trust. If you establish this type of trust, you do not have to worry about losing control the assets. It would in fact be revocable, and you can act as the trustee and the beneficiary while you are alive and well.
We added the “and well” part because you can name a disability trustee to administer the trust in the event of your incapacity. This is key, because 10 percent of all seniors contract Alzheimer’s disease, and the figure is 32 percent for people that are 85 years of age and older.
In the trust declaration, you would name a successor trustee. This could be the same person you selected to serve as the disability trustee or someone else, and your heirs would be the beneficiaries. After your passing, the trustee would distribute the assets in accordance with your wishes outside of probate.
All of the drawbacks we touched upon above would be avoided, and the property that comprises the estate would be signed over to the trust. This would provide the trustee with a turnkey situation.
To account for property that may have been in your direct personal possession, you can add a pour-over will. This type of will would allow the trust to absorb assets that were never conveyed into it.
A living trust can be ideal if you have concerns about the money management capabilities of a loved one. You can include a spendthrift provision that would protect the principal from the beneficiary’s creditors. It would also possible to instruct the trustee to distribute limited assets over an extended period of time.
In addition to the revocable living trust, there are a number of different types of irrevocable trusts. You would want to use one of these trust if you want to get assets out of your own name for some reason.
For example, many seniors seek Medicaid eligibility, because Medicare will not pay for long-term care. Medicaid does cover custodial care, but it is a need-based program, so there are income and asset limits. A Medicaid planning strategy can include the creation of an irrevocable Medicaid trust.
This is just one example, but there are other reasons why someone may want to use an irrevocable trust.
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Our doors are open if you need to discuss your estate planning needs with a licensed attorney. You can send us a message to request a consultation appointment, and we can be reached by phone at 808-531-5391.