We often clear up misconceptions that people have about the different estate planning asset transfer vehicles. One of them is the idea that a last will is the only logical choice for people that are not extremely wealthy.
In reality, this is not the case at all. It can seem like a last will is a very simple, straightforward document that facilitates quick and easy transfers to the heirs that are named in the document. However, there are some limitations and complications lurking right beneath the surface.
When it comes to the complications, the process of probate is the culprit. If you were to create a last will, you would be called the testator, and you would name a personal representative in the document. This person, sometimes called an executor or executrix, would be charged with the estate administration tasks after you pass away.
Many people assume that the executor can follow the instructions with regard to the asset transfers that are in the will and distribute the assets to the inheritors directly. In fact, the laws do not allow the personal representative to act independently.
The will would be admitted to probate, and the probate court would provide supervision during the estate administration process.
During probate, your creditors are notified, and they are given some time to come forward to receive payment. The executor will open an estate bank account so these debts can be paid.
All the property that comprises the estate will be identified and inventoried, it will ultimately be prepared for distribution to the heirs that are named in the will.
This can include the need for appraisals and liquidation of property. It is not always simple to get fair value for property overnight, so this can be a lengthy process in some cases.
Probate is not free, and this is another thing that many people do not take into consideration. The personal representative is entitled to payment for his or her time and effort, and there are going to be legal fees if a probate lawyer is brought in to assist the executor.
There are filing fees and court costs, and there can be expenses that go along with the appraisal and liquidation process. All of these debits are reducing the value of the estate, so the money is essentially coming out of the pockets of the heirs.
These drawbacks are considerable, and there is another major factor that a lot of people do not think about.
You may have someone on your inheritance list that is not a very good money manager. This individual may come to you frequently looking for financial assistance.
It can be disconcerting to leave a spendthrift family member a lump sum inheritance, because it can be used up quickly, and there will be nowhere to turn in the future. You would in fact be leaving lump sum inheritances if you were to use a last will as your vehicle of asset transfer.
Revocable Living Trust
There is another option that you can take advantage of if you want to include spendthrift protections in your estate plan. Under these circumstances, you can establish a revocable living trust with a spendthrift provision.
You would be the trustee while you are living, so you would not surrender access to your assets. When you are drawing up the trust agreement, you would name a trustee to succeed you after your passing, and your heirs would be the beneficiary.
The trust would become irrevocable after your death, and the beneficiary would not have direct access to the resources. Their creditors would be the same position, so the assets would be protected.
To limit spending, you could instruct the trustee to distribute a certain amount each month for a number of years until the beneficiary reaches a certain age. A living trust can remain open for as long as 21 years.
This is a major advantage if you have concerns about the money management capabilities of a loved one, and there is another huge benefit. The administration of a living trust is not subject to probate, so all the drawbacks that we looked at in the first section are not a factor.
Attend a Free Webinar
We conduct webinars on an ongoing basis that cover important estate planning and nursing home asset protection topics. They are free to attend, and you can learn a great deal of you if can make it to one of the sessions.
You can see the dates and obtain registration information if you click the following link: Bluffton, SC estate planning webinars.
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