If you have never put an estate plan in place, in the back of your mind, you may feel as though you can create a last will at some point in time and you will be prepared. Indeed, many people equate estate planning to the creation of a will, and that’s the end of it in their minds.
This is a very shortsighted perspective, and you should understand all the facts before you decide that a last will is right for you. A living trust can satisfy many different objectives that a last will cannot accomplish, and many people actually harbor these objectives.
Living Trust vs. Last Will
First of all, we should debunk a misconception that prevents many people from considering the creation of a living trust. You can get the idea that you surrender access to assets that you convey into a living trust. In fact, this is not the case.
A living trust is revocable, so you can change your mind, revoke the trust, and take back direct personal possession of the property that you conveyed into it. The trust would no longer exist.
As the creator or grantor of the trust, you can act as the trustee while you are living, and people typically do this. You would control the trust while you are living, and you could also act as the beneficiary.
This level of control can be quite comforting, but there is also a great deal of flexibility. You can convey assets into the trust after you initially create it, and you can remove assets if you choose to do so.
When you create the trust, you draw up a trust agreement or declaration. In this document, you name a trustee to succeed you as the trust administrator after you pass away. Your first thought may be to name someone that you know personally, but you have another option.
You could use a corporate trustee. Trust companies and banks provide trust administration services, and there are many benefits that you can gain if you go with a professional fiduciary. There would be impartiality, there would be no conflicts of interest, and the longevity of the trustee would not be a factor. Plus, the assets would be managed by a certified professional.
Once again, these decisions are not necessarily etched in stone. If you want to change the successor beneficiary or trustee designations, you have that freedom when you establish a revocable living trust.
In the agreement, you decide how you want the trustee to distribute assets to the successor beneficiaries. You may not want the beneficiaries to get all of their inheritances at once.
To account for this, you could have the money invested, and the trustee could be instructed to distribute the earnings from the trust to the beneficiaries on an incremental basis. In this manner, the principal could act as an income-generating workhorse.
Plus, if you include a spendthrift protection, there would be a certain amount of asset protection from the beneficiary’s creditors if the verbiage is carefully crafted by a licensed estate planning attorney.
This is just one example, but the point is that you have control over how the assets are ultimately distributed to the beneficiaries after your passing. On the other hand, if you maintain personal possession of your property, and you have it distributed through the terms of a will, you would have to allow for lump sum distributions.
Another advantage that you would gain with a living trust that you would not have with a will is the ability to prepare for possible incapacity. Many elders become unable to handle their own affairs at some point in time. In fact, Alzheimer’s disease strikes almost half of the oldest old, and of course there are other causes of incapacity.
When you convey assets into a living trust, you could empower the successor trustee to manage the assets in the trust if you ever become incapacitated.
Obtain Additional Information
When you start to get an idea of the benefits that you can realize if you utilize a living trust as your primary asset transfer vehicle, trust creation can sound rather appealing. We have scratched the surface in this blog post to whet your appetite, but you can obtain an added level of information if you download our in-depth special report.