A lot of people are under the impression that a last will is the most simple and efficient way to facilitate postmortem asset transfers. They assume that trusts are only useful for very wealthy individuals that have complex inheritance planning concerns. In reality, the administration of a will is actually quite complicated, and there is a type of trust that can benefit people that are not among the financial elite.
When it comes to the complications, the process of probate is the culprit. If you were to create a last will, you would be called the testator, and you would name a personal representative in the document. This person, which is called an executor or executrix in some jurisdictions, would be charged with the estate administration tasks after you pass away.
Many people assume that the executor can follow the instructions with regard to the asset transfers that are in the will and distribute the assets to the inheritors directly. In fact, the laws do not allow the personal representative to act independently. The will would be admitted to probate, and the probate court would provide supervision during the estate administration process.
During probate, your creditors would be notified, and they would be given some time to come forward to receive payment. All the property that comprised the estate would be identified and inventoried, and it would ultimately be prepared for distribution to the heirs that are named in the last will. This can include the need for appraisals and liquidation of property. It is not always simple to get fair value for property overnight, so this can be a lengthy process in some cases.
In addition to the time lag, there are some considerable expenses that can accumulate during the probate process. The executor or personal representative is entitled to payment for his or her time and effort, and there are going to be legal fees if a probate lawyer is brought in to assist the executor. There are filing fees and court costs, and there can be expenses that go along with the appraisal and liquidation process. This red ink is going to reduce the inheritances that are eventually received by the heirs.
These drawbacks are considerable, and there is another major factor that a lot of people do not think about. You may have someone on your inheritance list that is not a very good money manager. This individual may come to you frequently looking for financial assistance. It can be disconcerting to leave a spendthrift family member a lump sum inheritance, because it can be used up quickly, and there will be nowhere to turn in the future. You would in fact be leaving lump sum inheritances if you were to use a last will as your vehicle of asset transfer.
Revocable Living Trusts
If these pitfalls do not sound very appealing to you, there is a viable alternative in the form of a revocable living trust. Assets in the trust would be distributed outside of probate, so the negatives would be avoided.
You don’t have to worry about losing control the assets, because you can in fact revoke or dissolve the trust at any time if you choose to do so. However, the point of the creation of the trust is to serve as an estate planning vehicle, so it is unlikely that you would ever want to revoke it. While you are alive, you can act as the trustee and the beneficiary, so your control is absolute even while the trust is intact.
If you have an heir that could be described as a spendthrift, you could instruct your attorney to include specific verbiage in the trust agreement with regard to the nature of the asset distributions.
For example, you could allow for monthly distributions of $4000 for an open-ended period of time. It would also be possible to provide larger distributions when the beneficiary reaches a certain age. In this manner, the viability of the trust could be prolonged.
Attend a Free Seminar!
Our inheritance planning lawyers are holding a series of workshops in the coming weeks. They are free to attend, and you can learn a great deal if you can make it to one of the sessions. You can click this link to see our upcoming schedule and follow the registration instructions to reserve your seat.