An asset transfer vehicle of some kind will be the cornerstone of your estate plan. Everyone has heard of the document called a simple will, and this is certainly a possibility, but you should explore all your options.
Many people think that trusts are only used by extremely wealthy people that have complicated holdings, but this is a misconception. There are some drawbacks that go along with use of a will, and trusts can satisfy specific objectives that can be important to people of ordinary means.
Wills and Probate
If you state your final wishes in a will, you would name an executor in the document to act as the estate administrator. This individual would not be able to act independently after your passing.
The will would be admitted to probate, and the court would provide supervision during the administration phase. Creditors would be notified, and they would be given time to come forward seeking satisfaction.
The assets would be identified, inventoried, and secured, and they would be prepared for distribution. In many cases, a probate attorney will be brought in, and final taxes must be paid, so an accountant may be engaged.
In addition to the fees that the professionals will charge, the executor is entitled to remuneration, and there is a filing fee with the court. The asset preparation process will involve appraisals and liquidation, and there are price tags attached to these services.
When you add in the incidentals, a significant portion of the estate is spent during probate, and this will reduce the inheritances that will be received by the beneficiaries.
Probate will typically take about eight months at minimum, and no inheritances are distributed while it is underway. Another negative is the loss of privacy, because probate records are available to anyone that is interested.
Other Types of Wills
A simple will that is utilized to direct asset transfers is not the only type of will in the field of estate planning. You can use a living will to state your preferences with regard to the use of life-support measures, and you can include your organ and tissue donation choices.
Ethical wills have been used since biblical times to share moral and spiritual values with the surviving relatives. Another will is the pour-over will, which is used in conjunction with the device that is explained in the next section.
Revocable Living Trust
The revocable living trust is a popular estate planning solution that is the ideal alternative to a simple will. You do not have to be concerned about losing control of assets that you convey into this type of trust, because you would act as the trustee, and you would retain the right revocation.
When you are drawing up the trust agreement, you name a trustee to succeed you after your passing, and they could be given the power to assume the role in the event of your incapacity.
After you are gone, the trustee would distribute assets to the beneficiaries in accordance with your wishes, and probate would not be a factor. As a result, the drawbacks that we have looked at would be completely avoided.
Another advantage is the ability to safely provide an heir that is a poor money manager. You can include a spendthrift provision, and the trust would become irrevocable after your death.
Going forward, the principal would be protected from the beneficiary’s creditors. You can prevent reckless spending if you leave instructions for the trustee with regard to the nature of the distributions. You could allow for limited incremental distributions over an extended period of time.
To account for assets that were never conveyed into the trust, you can include a pour-over will in your broader estate plan. This document would facilitate the transfer of those assets into the trust after your passing.
The revocable living trust is the right choice for a wide range of people, but there are other tools in the estate planning toolkit. Another type of trust may be preferable in light of your personal situation. We can gain an understanding of your legacy goals and provide the appropriate recommendations.
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Our doors are open if you are ready to work with a Memphis, TN estate planning attorney to put a plan in place. We have attorneys that are also licensed in Mississippi and Arkansas, so we are here to help if you live in one of these great states.