That's a question we hear a lot from people when they meet with us about their estate planning. Some people are very surprised to hear that the answer we give doesn't strictly depend upon how large their estate is. Instead, the answer depends on the client's planning needs and goals, which are determined by considering their assets, their beneficiaries, and their goals.
A Living Trust is an estate planning tool that allows the most flexibility, control and choices in planning the estate, and is used primarily by people who want to:
• Avoid Probate, and/or
• Protect their Beneficiaries
For some people, one of the most important aspects of using a Trust is avoiding Probate. There are three primary reasons why people want to avoid Probate:
1. Probate is expensive (attorney fees can be as high as 4.5% of the gross value of the estate).
2.Lack of privacy (your private information about your beneficiaries and your assets is made public).
3.Loss of control (you can lose control of how and when your assets are distributed).
First, if you are incapacitated (meaning you are not capable of managing your property and financial affairs due to illness or injury), then your Successor Trustees will take over the management of your trust assets. If you become incapacitated, your Successor Trustee will be responsible for paying your bills, making financial decisions with the investment of your assets, and may even have to sell some of your assets. Your Successor Trustee will be able to do anything you could with your trust assets, as long as it does not conflict with the instructions in your trust document and does not breach their fiduciary duty.
A Living Trust that is properly funded will avoid Probate.
With a Living Trust, you are also able to control how and when distributions are made. For some beneficiaries, an outright distribution is not appropriate. Some beneficiaries face “Life Risks” that could require special treatment in the estate plan. Some of these Life Risks include:
• Disabled Beneficiaries
• Creditor Problems
• Divorce/Marital Issues
• Financial Inexperience
For beneficiaries with these issues, the answer is designing the Living Trust so that an inheritance is controlled by someone else (the Successor Trustee you name in the Trust) for the benefit of the beneficiary, at least until it is more appropriate to give outright control to the beneficiary.
For other beneficiaries, an outright distribution could be OK, but a plan with protections could still be a better approach. For those beneficiaries who are “just fine” now, many of our clients still want to add the protections to their planning, knowing that there are unknowns out there that can happen at any time. Their beneficiaries could develop marital issues or creditor issues in the future, or they could die or become incapacitated, subjecting those assets to probate and perhaps giving those assets to someone you might not prefer (the beneficiary’s spouse instead of your grandchildren, for example).
In those situations, they utilize a “hybrid” approach, balancing protections with control for the beneficiaries. This can be done by making the beneficiaries a Trustee or a Co-Trustee of their own trust share, which allows them to have access to the trust assets and control over how and when they are used, but also gives them some protection from unforeseen circumstances that could otherwise be devastating.
With a Living Trust, you can simplify your estate and make it easier for your loved ones, while saving money and protecting those who need it. With these planning tools, you really are able to Protect Those You Love and Preserve What You Have.
To learn more about estate planning issues and ways to plan your estate to avoid Probate and protect your loved ones, watch one of our Webinars.