Estate planning can be a complicated subject. For some, their options are simple and straightforward. But there are factors that can quickly convolute a simple and straightforward topic into a matter of much research and heavy debate.
In the case of estate planning, the two major factors include the nature and size of your estate, as well as the nature and size of your family. Complicated family relationships, problems with the spouse or with your children, and a messy history of ownership or assets tied up in various ways can make estate planning a nightmare for a novice with little to no introduction to the matter.
One of the major questions for many facing the prospect of managing their future estate in case they pass on, is the choice between a simple will and a more complicated living trust. Both have their pros and cons yet choosing between them means weighing these pros and cons and seeing which choice ends up best suited to you. In that regard, here is what you and your financial planner need to know about living trusts.
A Living Trust Can Avoid Probate
When it comes to living trusts, the biggest, most valuable aspect is that it annuls the lengthy, burdening process of probate litigation. Probate involves the probing and proving of a last will and testament, as well as the execution of its contents through a court-assigned administrator/executor.
There is a minimum period for the probate process in every single state, based on that state’s own set of probate rules. In California, the probate process must last a minimum of six months. This is to give creditors time to lay a claim against the estate, to be evaluated and legitimized by the probate court, to settle any debts that the decadent may have had before their passing.
The larger the estate, the longer probate takes. The more controversial the will, the longer probate takes. Probate is not only a place for wills to be examined, but also a place for them to be challenged – a feuding family member can challenge a will and present a different one or ask that a will be ignored claiming it was written under duress or in a time of insufficient mental capacity, if proof exists to support such accusations.
Even if everything goes smoothly, the process takes at least half a year. It begins with the filing of all the necessary paperwork, and a petition towards probate through an official death certificate. Once probate begins, the court must appoint an administrator (usually someone mentioned on the will, or whomever is fit to take that duty on), and then the process will continue until the estate has been wholly distributed to its creditors and inheritors, as per the will and the law.
If no will exists, then probate will oversee the process of inheritance as per a state’s intestate laws. Intestate succession dictates how an estate is distributed among the survivors if no will has been written or found.
Living trusts ignore this and can distribute assets far faster than a court could. While a living trust must still be distributed, there is no time limit for this, and no need for a special court. Once the creator of the trust has passed or is permanently incapacitated (i.e. in a vegetative state), a living trust’s administrator or the succeeding trustee will see to it that the trust’s contents are distributed as agreed upon.
Similarly, creditors can still attack an estate after the trustee has passed. A revocable living trust does not offer asset protection. An irrevocable living trust (which cannot be amended, permanently taking property off your hands and into the hands of the trust) does offer asset protection, but it may not always be the best option. Choosing between them is a matter of another time.
Living Trusts Are Private
One detail to a classic will that is not often considered is the fact that wills are a matter of public record. When going through the probate process, a will is made available to anyone requesting to see it, meaning your estate itself can be made visible as well.
To protect the privacy of your estate and general financial matters, as well as prevent your final wishes from being made public, turn to a living trust instead. Through a trust, all your wishes and assets are protected, and no one outside your family and the IRS must know what the contents of your estate are.
Living Trusts Cannot Appoint Guardianship
Living trusts come with a series of cons, including the fact that they may be complicated and costly to set up properly, especially if you have not meticulously organized all your paperwork. You must amend your ownership of any major asset and go through the process of funding your trust.
However, aside from that well-known caveat, trusts are also incapable of naming guardians. A will can be used to declare a guardian for your issues (children and dependents) after you pass on – but in a trust, any such mentions are suggestions rather than enforceable by law.
When it comes to estate planning, making the best possible choice can be hard. There are no fast and easy rules – the best way to set up your estate and plan for your family’s inheritance is through careful deliberation of your state’s laws and your own financial circumstances.
With an expert by your side, you can avoid common pitfalls and be more confident in your chosen plan. It is vitally important to plan now – the future is uncertain and having a solid plan for the unexpected is always the smart thing to do. Take your time and look over your options. While living trusts are extremely flexible and useful for avoiding probate, they still take time to execute properly.
In addition, probate can be avoided, yes, but it does not have to be avoided. If you do not mind the publication of your assets and estate and have a smaller estate (of less than $150,000), then the option exists to speed up the probate process after your passing, thereby reducing the impact the ordeal can have on a grieving family. However, even then, it’s wiser to consult with an expert before drafting your will and choosing other estate planning tools.