A lot of people that have never looked into all of the facts assume that trusts are only useful for very wealthy individuals. The perception is that a last will is the right choice for people of relatively ordinary means. In reality, this is not the case at all.
There are some types of trusts that are used by individuals that have advanced estate planning concerns, such as estate tax exposure. These are typically going to be irrevocable trusts, but there is another type of trust that provides multiple benefits for people that are not extremely wealthy.
This is the revocable living trust, and in this post, we will look at the matter of contests and some of the benefits that living trusts provide.
Contests Are Expensive and Risky
If you use a living trust, it is possible for someone to file a lawsuit to contest the terms. However, this is expensive and complicated, and that in itself is a deterrent. Plus, you can proactively include a no-contest clause. This would completely disinherit any beneficiary that challenges the terms of the living trust.
Most people wouldn’t take the chance if they are getting something from the trust. Of course, a beneficiary would have the legal right to initiate a lawsuit and take the risk.
No Loss of Control
If you were to establish a revocable living trust, you would be called the grantor or settlor in legal parlance. The trustee is the individual or entity that would manage the assets in the trust, and the beneficiary would be able to receive monetary distributions from the trust. While you are living, you can act as the trustee and the beneficiary, so you have total control every step of the way.
You can remove assets from the trust if you choose to do so, and on the other side of the coin, you can convey assets into the vehicle after it has been established at any time. The terms of the trust and the beneficiary designations can also be altered if you ever want to make changes.
In the trust declaration, you name a successor trustee to administer the trust after you pass, and you name a successor beneficiary (or multiple beneficiaries). Many people become unable to handle their financial affairs at some point in time due to incapacity. To account for this, you could empower your successor trustee to administer the trust if you ever become unable to do so.
When a last will is used as a vehicle of asset transfer, it must be admitted to probate. This is a legal process that takes place under the supervision of a court. There are a number of drawbacks that go along with the probate process, and the first one is the time consumption. It can take somewhere in the vicinity of a year for a simple case to pass through probate, and the heirs cannot receive their inheritances until the estate has been probated and closed by the court.
Another pitfall is the loss of privacy. Anyone who is interested can access probate records to find out how you planned your estate. Plus, there are numerous different costs that can accumulate while the probate process is underway, and this red ink reduces the size of the estate before it is transferred to the inheritors.
All of these pitfalls are avoided when you use a living trust instead of a last will as your vehicle of asset transfer. With a living trust, the trustee that succeeds you would be empowered to distribute assets the beneficiary or beneficiaries outside of the probate process.
If you are concerned about the money management capabilities of someone on your inheritance list, a living trust provides a great benefit. You could instruct the trustee to distribute assets to the beneficiary incrementally. For example, you could allow for monthly distributions of the earnings from investments that are held in the trust. You could choose to give the trustee the discretion to provide additional distributions when certain circumstances exist, and you could allow for a lump sum distribution when the beneficiary reaches a particular age.
Attend a Free Seminar!
We provided some basic information in this relatively brief blog post, but you can learn a great deal more if you attend one of our upcoming seminars. They are free, but we do ask that you visit our seminar schedule page to reserve your seat, because space is limited.