The Revocable Living Trust is both a life-planning and death-planning document. It allows for probate avoidance, one of its greatest benefits, but also provides for management if you become disabled. This Trust allows for asset management while at the same time providing flexibility for the changes in your life as time progresses.
One of the biggest benefits is the ability to maximize your estate tax savings. This Trust allows the owner to maximize his/her estate tax credit which, for a married couple, thereby reduces estate taxes paid at the death of the spouse.
Unlike an Irrevocable Trust, the Revocable Trust can be changed at any time. The assets can be put in or taken out at any time by the Grantor. The downside is that the Grantor still "owns" the assets which makes them reachable for Medicaid and creditor purposes. The Trust will take title to many of your assets, including bank accounts, life insurance, brokerage accounts, CD's, and real estate. It can also be the beneficiary of life insurance and even IRAs or other qualified assets.
As a tool to reduce post-death costs, the Revocable Trust will avoid probate and the cost and delay caused by the court system. It will allow for a quick, efficient transfer of your assets to the trust.
The trust is an alternative to transferring real estate to children to protect it. Transferring real estate to children can be problematic if the parent ever wishes to sell, or if any of the children die before the parent, get divorced or file bankruptcy. Using the trust avoids all of these problems. If someone owns real estate in multiple states, trusts can provide extensive savings on probate in other states. In fact, using a trust when someone owns property in multiple states will actually cost much less in the long run than using a Will.
As a beneficiary of an IRA, the trust will pass the pre-tax dollars to the trust beneficiaries (usually children) over the life expectancy of the oldest beneficiary. The trust can, however, pass those benefits to children over their respective lives as well. The trust has the added benefit of protecting IRA assets for these children who are disabled and for whom the IRA would disqualify governmental benefits. Furthermore, should a child die before the IRA is fully distributed, the IRA will pass to those people of the Grantor's choosing, likely the grandchildren, rather than the in-laws.
The trust provides that your assets will pass to children and stay in the bloodline. If a child dies before the parent, the trust helps prevent the diversion of family assets to spouses, in-laws or unrelated persons, thereby protecting the grandchildren's inheritance. The trust also protects your children's inheritance from divorce, rights of election, creditors and the nursing home.
For those who have young children, children who are spendthrifts, drug-addicted children, disabled children, or children with other problems, the Trust, or even a well drafted Will, can provide protection for them. We recommend withholding inheritances from children until at least 25 years old. The law provides that an 18 year old will receive their inheritance unless a trust is created for them. More often than not, a child at 18 will not know what to do with their money and will squander it. The goal is to make sure that these young adults are protected until they are old enough to properly manage the money.
The Last Will and Testament is the written determination for the disposition of assets at death. In some instances, the Will is nothing more than a conduit to your Living Trust, picking up assets and pouring them into the Trust at death. In a well funded trust plan, the Will is not utilized at all because the estate has been moved to the trust during life.
For those who don't have a Trust, the Will contains the dispositive provisions for the worldly goods: money, home, car, etc. Having a Will is vital because it tells the world who gets what, when, and how. If someone dies without a Will, the state determines who gets the possessions and the likelihood for litigation and bitter family disputes is much higher. It is important that you make your own decisions about where your assets go.
Wills are important because we can use them to protect children, the disabled, and even for tax purposes, all if the Will is written properly.
If one's assets pass through a Will, then the process of probate is required. Probate is the state-regulated process that requires court and judicial approval to pass the assets to the heirs. While it is generally effective and can work well, sometimes probate can be a long and arduous process. The state mandates that at least seven (7) months pass before an estate can be closed. You can expect at least twelve (12) to fourteen (14) months from the date of death to pass before the estate will be closed. It also requires filing fees and paperwork that Trusts do not.
One of the biggest issues with probate can be finding the next of kin. In order to properly probate a will, the executor must either get all the closest heirs (usually spouse and children) to sign waivers and approve the Will. If they do not sign, or if the heirs cannot be found, the process will slow down. There are times when the closest relatives are cousins, which at times can be difficult to find. The rules say even if these people are not named in the Will, they must be put on notice.
The Health Care Proxy is the document that appoints an agent to make health care decisions when a person gets to the point where they cannot take decisions for themselves. The principal appoints an agent he or she trusts to follow his or her wishes, particularly, the difficult life-ending decisions. It is important that the agent understands that person's wishes and is willing to follow them. Many people choose agents who have some connection to the medical field, although that is not necessary.
The Health Care Proxy should be specific enough to provide guidance, but should not be so limiting as to be problematic. Everyone should have a Health Care Proxy, and copies should be provided to the agent(s) and the primary-care physician so it is part of the person's medical records.
The Power of Attorney is the most powerful and yet necessary estate planning tool that exists. It is important that everyone has a Power of Attorney, but at the same time, care should be taken to name appropriate agents and shelter the document itself to prevent it from being used until it is needed.
A Power of Attorney provides the agent with access to, and control of, the principal's assets. An agent who has this power can withdraw funds, write checks, change beneficiaries and transfer real estate. Essentially, it places the agent in the principal's shoes, allowing him or her to make decisions for that person. These are all important powers should the principal become unable to act, but are sufficiently broad to require caution.
A Power of Attorney can prevent the need for obtaining a guardian over a disabled or elderly person who needs help. Therefore, it is important that one be created while someone is healthy and that it be maintained safely. The time and cost of creating a Power of Attorney when a person is healthy is far less than bringing a court proceeding to appoint a guardian at a later date.
It's time to start planning for your future and the future of your children. Although you can't predict the future, you can prepare for it by estate planning from Hilton Estate & Elder Law, LLC. Call today for a FREE initial consultation.
Are your children, your spouse and your possessions protected if you were to suddenly be gone? No matter how old you are it is never too late to start estate planning and make sure that you and your family are protected.
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