Most people work hard and save diligently to accumulate wealth but they often pay little or no attention to preserving this wealth for their heirs. They often don’t consider the consequences of becoming incapacitated or dying without executing a valid will or revocable trust. Preparing an estate plan can protect families from a painful and expensive intestacy proceeding that usually follows when someone dies without a valid will in place.
At death, if an individual owns assets such as real estate or cash or investment accounts that do not pass by beneficiary or “pay-on-death” designations, his or her Will, assuming they have one, will need to be probated. During the probate process, Wills become public documents that anyone – even those unrelated to the deceased – can read as they are filed for public record during the probate process (so there’s no privacy). A will can be contested, and it is only effective after you die. This means it doesn’t really help you manage your finances if you become incapacitated during your lifetime.
Probate can be a relatively quick process in some states if your Will is validly drawn and executed and there are no contested issues. During the probate process, after the Will if filed in an Application Requesting Probate in the appropriate county court, your assets are frozen for a period of time during which a notice to creditors is filed of public record, and then after the expiration of the notice period (about two weeks), a prove-up hearing is scheduled.
At the hearing the executor named in the Will is issued Letters Testamentary. The Letters Testamentary are what allow the Executor to transfer the assets of the deceased to the beneficiaries of the Will. Since probate files are open to the public, if the deceased has disinherited a child, nosy neighbors can easily reach the information.
Wills may not be the best estate planning tool for everyone, as something called a Revocable Trust may better suit your needs. This is a trust created by you for your own benefit during your lifetime. The trust can be amended, revised, or revoked for any reason or no reason at all while you are alive. The Revocable Trust allows you to transfer ownership of your assets to the Revocable Trust during your lifetime, while you remain in control as Trustee of the Revocable Trust.
The advantage here is that if all assets that would otherwise require probate at your death are owned in the Revocable Trust, there would be no need for probate at your death. As Trustee and beneficiary of the Revocable Trust, you can control the assets at all times through your death, and beyond by specifying how you’d want your assets distributed after you’re gone, and naming successor Trustees to serve in the event you cannot.
1. Probate Avoidance
This is a major advantage of using a Revocable Living Trust. Why subject your loved ones and your property to the restrictive rules of probate when you can easily avoid it with the use of a fully funded Revocable Trust. This Revocable Trust is especially great if you own real estate in more than one state because without a trust, your heirs will be faced with two or more ancillary probate proceedings in every such state. A Revocable Trust also gives your heirs almost immediate access to cash while it could take many months if you get stuck in Probate.
2. Eliminating Guardianship or Conservatorship Proceedings
With a Revocable Trust, your family and your property can avoid the restrictive rules of guardianship or conservatorship, and a successor trustee (chosen by you) can take over control of your trust assets per your directions, without interference by a judge, in the event you become incapacitated. Moreover, you may be incapacitated for a long time, so your guardianship could last for up to twenty years – making life much easier and less expensive for everyone involved if the process can be avoided by the use of the Revocable Trust.
Again, probate is a public proceeding – so anyone can go to the courthouse and get a copy of your probated will for a fee. In some jurisdictions, you can even look them up online. A Revocable Trust is not required to be filed in court and won’t become a public record for everyone to see or use to their advantage.
4. Organization of Your Asset and Liability Information
When you set up a Revocable Trust, to achieve all of its benefits you will need to transfer ownership of your assets into it. To accomplish the transfers, you will need to find account statements, stock certificates, corporate minutes, car and boat titles, and deeds to real estate. This transfer process will not only benefit you, because you’ve taken the time to get organized and fund your trust, but it will also be of great assistance to your beneficiaries after the time of your death as they will have information relating to your assets and liabilities without the need to turn your home upside down searching out that information.
A Revocable Trust could cost you a bit more time and money to set up than simply writing a Last Will and Testament. But in the long run, the overall time and money spent on the trust will be lower because your heirs will avoid costly court-supervised guardianship if you become disabled and a costly court-supervised probate proceeding after you die. Aside from this, a trust avoids the emotional tolls your family might face when dealing with the guardianship and probate processes.
2. Funding a Trust is Time Consuming
Once your trust has been signed, you’ll need to contact your banks, investment and insurance companies, and transfer agents to change account and stock ownership, update beneficiary designation forms on your retirement plans; issue new stock certificates or assign partnership or LLC interests for closely held businesses; and sign and record new deeds for real estate. For most people, this is the major drawback to using a Revocable Trust – if it’s not fully funded, then the full value of using it as an estate planning tool is greatly diminished. The type of assets that you own and what will need to be done to get them funded into a Revocable Trust should be carefully considered before you decide to use a Revocable Trust.
3. You’ll Still Need a Last Will and Testament…
You will still need a Will in case you do not complete the transfer of all of your assets to the Revocable Trust before you die. This means you will need to supplement your Revocable Trust with a “Pour Over Will, to “catch” your unfunded assets and “pour” them into your trust. The Pour Over Will is only needed if you have assets that have not been transferred before your death, and a probate proceeding will be needed anyway. That is the reason why funding your Revocable Trust while you are alive is so important.
4. Time Limits for Contesting a Trust vs. Contesting a Will
Most states have specific statutes that dictate who can challenge a Last Will and Testament and allow 30-90 days to challenge it. Contrast this with contesting a trust, which leaves the door open for a little longer. While the time period for a contest is longer than a Will, challenging a trust is not as straightforward or easy to accomplish as contesting a Will.
Generally, the pros of utilizing a Revocable Trust as part of your estate plan outweigh the cons. An estate plan attorney can assist you in selecting the appropriate tools for your individual needs. Most important of all is to take steps to protect your family from the painful “intestacy” process by having a validly executed estate plan in place, whether it consists of just a Will, or it also includes the Revocable Trust.
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