Some people think that there is no real reason to use a trust if you are not a multimillionaire with a really complicated estate. They assume that a last will is the right choice for most people, but when you find out the facts, you may come to the conclusion that this is really not the case.
Last Will Drawbacks and Limitations
You may have watched a scene in a movie or on a television show that takes place after someone passes away. People that attended the funeral gather together at the home of someone that was close to the decedent. Certain individuals are called aside by the executor, and there is a “reading of the will” behind closed doors.
The implication is that the executor reads the will so that everyone can gain understanding of the final wishes of the person that is leaving bequests. Shortly after that, the executor starts to write checks and distribute physical property to the rightful heirs to the estate.
This is pure fiction. Under the laws of the state of South Carolina, the executor would be required to admit the will to probate. The court would provide supervision while the estate is administered by the executor.
If it is a simple will with no testamentary trust as an accompaniment, the inheritors would receive lump sums. This can be fine in some cases, but what about people that are not good with money? You may not want to leave a large direct inheritance to a loved one that may burn through it too quickly.
It takes about eight months to a year for probate to run its course, and the executor cannot distribute inheritances until the court has closed the estate. Innumerable expenses accumulate during probate, and this red ink reduces the value of the estate before it is passed along to the heirs.
Probate is not a private proceeding. Anyone with an interest can access the records to find out how the resources were distributed, and this is another negative. Plus, disgruntled parties can issue estate challenges during probate.
Revocable Living Trust
A widely used alternative to a last will is the revocable living trust. You lose no control of resources that you convey into this type of trust, because you can act as the trustee and the beneficiary. Of course, as the name would indicate, you can revoke the trust entirely if you choose to do so.
In the trust declaration, you name a successor trustee to take over after you pass away. You could name this person or someone else to assume the role in the event of your incapacity, and that is a key benefit.
After you are gone, the beneficiary would follow instructions that you leave behind in the trust agreement. Assets would be distributed to the beneficiaries, and the probate court would not be involved.
With regard to the matter of an heir that is not good with money, there is a way to address this when you have a revocable living trust. You can include a spendthrift provision, and this would protect the principal from the beneficiary’s creditors.
Plus, you can set any distribution terms that would make you feel comfortable. For example, you can instruct the trustee to distribute a certain amount each month until the beneficiary reaches a certain age. At that point, you could allow for the release of the remainder of the funds.
Other Types of Trusts
In addition to the revocable living trust, there are other trusts that can satisfy different objectives.
For example, you could convey assets into an irrevocable trust get them out of your own name with future Medicaid eligibility in mind. This program is relevant, because Medicare does not pay for assisted living facilities.
This is just one of many different reasons why you may want to use some type of trust instead of a last will.
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