Planning matters

Respect the Estate

The news of Aretha Franklin’s death to cancer is tragic to the music world and all who admired her. In the days following her death, I enjoyed hearing information about her life and contributions to music history. One of things I found befuddling was the fact that she didn’t have any type of estate planning documents in place to handle her estate!Today we’ll highlight a few reasons a living trust might make sense over a will for your estate.

Everyone should have legal instructions to leave behind in the event of their death. For many people a will is enough, but some people should consider creating a living trust. The two documents fundamentally serve the same purpose: they allow you to direct how (and when) your assets will be distributed to your beneficiaries, and to appoint who will make important decisions on behalf of you and your loved ones. A will is a piece of paper that tells a court what to do with your assets, while a living trust is a legal entity that controls your assets after you die.

Keep in mind there are reasons a will might be a better option for you over a living trust. Talk to your financial planner or attorney on the pros and cons for your situation. For now, we’ll discuss reasons a living trust may make sense:

1. WHEN YOU WANT TO AVOID PROBATE COURT.

Living trusts avoid probate, which is a judicial process that many assets included in wills must go through. There are a lot of good reasons to want to avoid putting your heirs through probate. It can be a lengthy legal process that can delay their inheritance for several months or longer. Probate proceedings also create public records that anyone can view, so you’ll sacrifice some privacy. And, if you own property in multiple states, there will be a separate probate process carried out for each state, which can be a hassle.

Assets in a living trust avoid probate court altogether. When you pass away, control of the trust transfers to a person or entity you choose, whether a friend, relative or a paid professional trustee. They are tasked with managing the trust’s assets according to the instructions you leave behind.

2. WHEN YOU HAVE HEIRS WITH SPECIAL NEEDS.

A trust can provide ongoing financial management for an heir with special needs who may never be able to manage their affairs themselves. Your heir may also lose eligibility for some forms of government assistance if they are granted their inheritance outright through a will. A living trust could avoid that situation.

3. WHEN YOU WANT TO PUT ONGOING CONDITIONS ON AN INHERITANCE.

While a will generally just simply distributes assets immediately after your death, a trustee can be given detailed instructions on how to handle the assets over the course of many years. You could, for example, instruct that an inheritance is doled out in thirds every 10 years. Or, you could make an heir’s access to inheritance funds dependent on them avoiding legal trouble or substance abuse.

4. WHEN YOU WANT TO PLAN FOR POTENTIAL INCAPACITY.

Another advantage of a living trust is that if you become incapacitated and cannot manage your financial affairs, a “successor trustee,” who you have previously named in the document, is appointed to manage trust assets for your benefit. This ensures that assets will continue to be managed under your wishes during your lifetime, even if you become unable to make those decisions for yourself.

BE AWARE OF DOWNSIDES

Creating a living trust is more expensive, likely costing a few thousand dollars rather than the few hundred to create a will. It creates a legal entity that must be managed while you are alive. A trust also only controls assets that have been placed into it, so assets outside the trust after your death won’t avoid the probate process. Most importantly, you must have a trustee you can rely on to transfer the trust to. How the instructions you leave behind are handled will be largely up to that person.

A living trust isn’t for everyone, but it’s something you may want to consider. We welcome you to bring in your current estate planning documents (wills, trusts, power of attorney) when you have your next financial review. Your planner will check to see if your instructions coordinate with your investments to meet your goals and refer you to a legal professional for further guidance if needed.

Written By Rachel Gorretta