A lot of people do not consider the possibility of creating a trust because they think that the administration process is extremely complicated. They also have concerns about losing control of the assets that they convey into a trust.
These notions are actually misconceptions, and we will provide some information about the administration of a living trust in this post.
You Are the Trustee
There are irrevocable trusts that are used to address specific objectives. People that want to qualify for Medicaid to pay for long-term care use these trusts, and high net worth individuals use irrevocable trusts to gain estate tax efficiency.
The revocable living trust is in a different category. As the name would indicate, you can in fact revoke or dissolve the trust after it has been created, and it will go into effect while you are still living.
You would be the trustee while you are alive and well, so you would have complete control of the assets in the trust. When you establish the trust, you can name a disability trustee that would step into the in the event of your incapacitation.
Postmortem Trust Administration
The purpose of the trust is to serve as an estate planning vehicle, so you name a successor trustee to act as the administrator after your passing, and your heirs would be the beneficiaries.
One of the major advantages from an administration perspective is the fact that the trustee can distribute assets to the beneficiaries in accordance with your wishes outside of probate. If you use a will to serve as an asset transfer vehicle, probate would be a factor.
The court supervises the estate administration process when a will is being probated. It will usually take eight months to a year for probate to run its course, and the inheritors have to play a waiting game. No inheritances are distributed during this interim.
Probate expenses will typically consume between three percent and seven percent of the value of the estate, and there is a loss of privacy, because probate records are available to the general public.
When a living trust has been established, all of these drawbacks are completely avoided.
Choosing a Successor Trustee
Any mentally competent adult that is willing to take on the responsibility can act as a trustee from a legal perspective, and there are professional fiduciaries that offer trustee services.
The right choice will depend on the circumstances. First, you may or may not know someone that is ready, willing, and able to act as a trust administrator, even if the situation is not that complicated.
An uncomplicated scenario would be a trust that is going to provide lump sum inheritances to all the beneficiaries immediately after your passing. There would be no long-term time commitment, and there would be no management of income-producing assets.
On the other hand, one of the benefits of a living trust is the ability to include spendthrift protections. You can instruct the trustee to manage investments and provide limited distributions over an extended period of time.
Under those circumstances, you may want to use a trust company, the trust department of a bank, or another professional.
Another consideration is potential favoritism or conflicts of interest, because trustees are sometimes given the ability to make discretionary decisions.
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