The facilitation of postmortem asset transfers is at the core of the estate planning process. A simple will is a possibility, and there are a number of different trusts that can be utilized.
People harbor some misconceptions about trusts. One of them is the idea that these devices are only useful for high net worth individuals that have complex holdings and estate tax concerns. Another one is the idea that you lose control of assets that you convey into a trust.
In reality, there are trusts that can be ideal for people of relatively ordinary means, and you do not necessarily lose control of assets that you convey into a trust.
Drawbacks and Limitations
If you use a will as the centerpiece of your estate plan, you would name an executor to act as the administrator after you are gone. When the time comes, they would admit the will to probate, and the court would provide supervision during the administration phase.
This process will usually take about nine months at minimum, and no inheritances are distributed while the estate is being probated by the court. There are expenses that accumulate as well, and they will reduce the value of the estate before it is transferred to the heirs.
You probably value confidentiality when it comes to your financial decision making. When a will is used, the probate records are available to anyone that is interested, so there is a loss of privacy.
In addition to the drawbacks, there are limitations. The heirs would receive lump sums, and this can be a source of concern if you have a poor money manager on your inheritance list. There would be no asset protection, and there would be no spending safeguards.
Revocable Living Trust
For many people, the ideal alternative to a simple will is the revocable living trust. When you establish a living trust, you act as the trustee, so you maintain complete control of the assets every step of the way.
You would name a successor beneficiary to administer the trust after your passing, and your heirs would be the beneficiaries. When the time comes, the trustee would distribute assets to the beneficiaries, and the probate court would not be involved.
A spendthrift clause can be included, and the trust would become irrevocable after your death. The beneficiaries would not have direct access to the principal, and this would apply to their creditors as well.
With regard to the distributions, you can leave instructions for the trustee. You could allow for limited distributions over an extended period of time to prevent reckless spending.
You retain the right revocation when you have a living trust, and there are also irrevocable trusts that are used to satisfy certain objectives.
For example, about 35 percent of elders will eventually reside in nursing homes. Medicare does not pay for long-term care, but Medi-Cal will cover the costs if you can gain eligibility.
Assets in a revocable living trust would be counted if you apply for Medi-Cal, because you would have complete control of the trust. However, you could convey resources into an irrevocable trust, and they would not count if you seek Medi-Cal eligibility.
An irrevocable supplemental needs trust can be established for a loved one with a disability that is relying on Medi-Cal and Supplemental Security Income. These are a couple examples, but there are other reasons why people use irrevocable trusts.
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