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No one looks forward to the task of estate planning. That said, as one gets older and accumulates more assets, it becomes a bit of a necessity. You want to make sure that your survivors are taken care of and that your assets are distributed as you wish. While some may consider the very idea of wills, estate planning, and trusts as something exclusive to the wealthy, the reality is that anyone with assets to pass on can benefit from planning.
Should you create a will? Should you establish a trust? Many find that a living trust, also known as a revocable trust, offers the best benefits for both you and your survivors.
In short, a revocable trust is an alternative to a will. Instead of assigning the court system to oversee probate administration and disbursement of assets, a private entity receives control of the assets. Also, a revocable trust can be changed at any time, which, in turn, provides some flexibility during the lifetime of the creator.
It should be mentioned that a revocable trust shouldn’t be confused with an irrevocable trust. The latter’s case cannot be changed or revoked and is usually used to separate assets such as life insurance policies or shares in a family business from an estate. This is often for tax reasons.
Throughout the life of a living trust, assets can be added and removed at any time. You could, say, add real estate, or sell some other property. It’s up to you. Just remember that this shouldn’t be considered a kind of tax shelter. Earned income or dividends will still be taxed to you, and creditors can yet seize assets within the trust.
Beyond that, you have a total say over who receives any assets from the trust following your death.
Understanding all of this, let’s look at some of the pros and cons of a revocable trust.
As already mentioned, you have the power to make changes as you see fit up to the point of your passing. In addition to making amendments, you have the option of assigning unrelated, out-of-town individuals to administer the trust. This is often more challenging with a traditional will.
A will might become public following your death. Not so with a revocable trust. Your estate’s distribution will stay private.
Many consider this reason one of the best for establishing a living trust. Probate court can be cumbersome, public, and expensive, so why not avoid it?
By putting your property and other valuable assets into a revocable trust or naming the trust as the beneficiary for things line like insurance or brokerage accounts, assets will be disbursed by how you want them to without supervision from the state.
With a traditional will, it’s not unusual for a significant amount of time to pass before assets can be distributed as you wish. With a living trust, these assets become immediately available to cover estate taxes, administrative expenses, debts, and survivor disbursement.
Should you become mentally or physically unable to take care of your affairs, the person you’ve given control of your trust takes care of everything, and you don’t have to worry about someone you didn’t choose taking control of your assets without your approval.
Suppose you don’t want a property, vehicle, or other valuable to fall outside the protection of a revocable trust. In that case, you’ll have to spend some time retitling everything you intend to be administered by the trust. It can be a bit time-consuming, but it will also be worth it in the long run.
As mentioned earlier, living trusts should not be used as tax shelters as they provide no tax benefits. It’s also worthing noting that some assets cannot be included in a revocable trust. These non-qualifying assets include IRAs and other qualified retirement accounts not owned by an individual.
Retirement accounts need to be planned carefully. Failing to do so can accelerate payments to beneficiaries and create unexpected tax consequences.
An often-overlooked disadvantage with a living trust is that heirs have a wider window within which to challenge a trust’s validity. In traditional wills, states have their own rules when it comes to who can challenge a will and for how long. Typically, this comes to between 30 and 90 days.
With a revocable trust, depending on the state, the length of time heirs have to contest a trust can often be one to five years or longer.
The estate law team at Heban, Murphree & Lewandowski, LLC, will do their best to make sure you have the best advice and assistance possible in planning your estate, whether it be in the form of a will or a trust. You can rest assured that your heirs are taken care of and that your final wishes will be seen through.