REASONS TO HAVE A LIVING TRUST THAT HAVE NOTHING TO DO WITH AVOIDING PROBATE AND ESTATE TAXES: 8 IMPORTANT REASONS.
By: Wesley J. Coulson, CELA (Certified Elder Law Attorney)
Dent Coulson Elder Law, LLC
The two most commonly cited reasons for using a living trust rather than a will are that a living trust saves the expense of probate and helps to minimize or eliminate the risk of having to pay estate taxes. With the increase in the estate tax exemption amount making them now a non-issue for the great majority of us, some people are now questioning whether avoiding the expense of probate is a sufficient reason for incurring the additional expense associated with planning your estate using a living trust rather than a simple will.
With that in mind, here are eight important reasons to plan your estate using a living trust rather than a simple will that have nothing to do with avoiding the expense of probate or estate taxes.
An important first note: these are potential advantages … things you can accomplish, and problems and mistakes you can avoid … if your living trust and associated documents are carefully and professionally drafted, with care taken to personalize them to your individual circumstances, and you are provided with the right guidance and help with the trust “funding” process – all things that, as experienced elder law and estate planning professionals, we at Dent Coulson Elder Law are proud to be able to very ably and caringly help you with.
- Assuring Consistency if You Make Changes. If you have a living trust, you can name it as the owner or beneficiary of all of your financial assets, even including IRAs, other retirement assets and life insurance policies. If you later decide to make changes to your plan of distribution, you would only need to change your living trust and that would effectively change everything in a comprehensive and consistent way. Since a will only covers assets that do not have a beneficiary designation, changing the terms of your will means having to also change IRA, other retirement asset and life insurance policy beneficiary designations, pay on death (POD) and transfer on death (TOD) designations and joint tenancies. If you don’t do that comprehensively — and most people frankly do not, especially as we age and our attention to detail tends to wane – you end up with a distorted and fragmented estate plan that isn’t what you intended. (Reasons to have a living trust: 1 of 8)
- Avoiding the Dangerous Gap When No One is in Charge After You Die. A power of attorney dies with the person who gave it. The personal representative (executor or administrator) of an estate is only authorized to act upon being appointed by the court. (There is a common but dangerous misunderstanding that a will also avoids probate. It does not.) During the time, often measured in months, between a person’s death and probate court appointment of a personal representative, no one is in charge and probate assets cannot yet be accessed. That be dangerous and problematic. If you have minor or special needs beneficiaries, funds may not be available to assist them. If the market shifts and so too should investment strategies, no one will be able to accomplish that. If you have a small business you operate as a sole proprietorship or a single-member LLC, no one will be in charge. (Reasons to have a living trust: 2 of 8)
- Keeping Your Family’s Personal and Financial Information Private. The expense involved is not the only troublesome aspect of probate. In any probate proceeding, the name and address of each of your beneficiaries becomes a matter of public record, as does the value of your estate. In many cases, an inventory listing every asset that is part of your estate must be filed with the court. The public records from probate proceedings are a tremendous source of free information for scam artists (including clever ones like shady financial advisors) and freeloaders interested in separating your beneficiaries from their inheritance. (Reasons to have a living trust: 3 of 8)
- Avoiding the Nuisance and Potential Expense of a Will Contest. Whenever a will is admitted to probate, a notice must be sent to all interested parties (including any heirs who may have been left out or given a reduced share) advising them that if they want to contest the will, they have six months in which to do so. If a will contest is filed, the estate cannot be settled or distributed until it has been resolved. That gives anyone who files a will contest substantial leverage, and it is not uncommon for even nuisance claimants to be paid something just so the estate isn’t held up indefinitely. A separate lawsuit would have to be filed in order to contest a living trust, generally without the contestant knowing the terms of the trust since it does not become a matter of public record. That’s a much larger hill to have to climb, and suits to contest trusts are much less common than will contests.(Reasons to have a living trust: 4 of 8)
- Determining the Age at Which Young Beneficiaries Assume Control Over Their Inheritance. If you want to provide for younger children, grandchildren or other loves ones in your estate plan (either directly or if a parent beneficiary dies before or at the same time as you), you might be understandably uncomfortable with the idea of having them assume complete control over their inheritance the day they reach age 18. You might prefer to have an older, wiser adult of your choice be the one deciding whether the inheritance is used for college education rather than, say, a hot car, an enviable collection of video games or the ultimate shopping spree. A living trust allows you to set up an inheritance so that it can benefit younger beneficiaries right away, but not put them in full control of the inheritance until whatever later age (or “ages in stages”) you choose. Perhaps worse yet, if a beneficiary has not yet reached age 18 and you haven’t otherwise provided, a guardianship would have to be set up in court, at considerable added expense, to receive and manage his or her inheritance until it’s turned over at age 18. (Reasons to have a living trust: 5 of 8)
- Protecting Your Loved Ones’ Inheritance from Claims of Creditors and Ex-Spouses. A living trust can (and, we believe, should) include provisions through which you can protect the inheritance you leave for your children (or child) or other loved ones from claims of creditors and claims of ex-spouses for alimony or separate maintenance. Moreover, that protection continues in effect for as long as the beneficiary (each can decide separately as to his or her share) chooses to leave the money in the trust, without compromising his or her right to withdraw money from the trust at any point you have allowed it. This “second generation asset protection” is, of itself, an absolutely compelling reason to have a living trust. (Reasons to have a living trust: 6 of 8)
- Controlling What Will Happen to Your Estate After Your Spouse or Another Initial Beneficiary Dies. If you are divorced and since remarried and have children from a previous marriage, and your first priority is to provide for your current spouse during his or her remaining lifetime, leaving your estate outright to your spouse through a simple will means that if you die first, your spouse’s will is going to control what happens to all of what’s left when your spouse later dies. Even in a first marriage situation, if you want to assure that whatever may be left of your estate after your spouse later dies goes to your children (or as you otherwise intend), you can and should do that through a living trust that will remain in effect until after your spouse later dies. The same holds true if you want to make sure that whatever is left of an inheritance you leave for an adult child goes to your grandchildren, rather than an in-law who may later remarry, after your child dies. (Reasons to have a living trust: 7 of 8)
- Providing for Special Needs Beneficiaries Without Causing Them to Lose Benefits Eligibility. A special needs person who cannot work to provide self-support is often dependent on government assistance to pay for basic necessities like food, shelter and medical care. Because the benefits programs that provide those are “means-tested,” receiving an inheritance outright can and generally does cause a special needs person to immediately lose eligibility for benefits. Including appropriate provisions for a special needs person in a living trust can assure your ability to help meet his or her other needs (clothing, education, transportation, recreation and more) without causing a loss or interruption of government benefits. (Reasons to have a living trust: 8 of 8)