When you are planning your estate, you should make fully informed decisions. A lot of people think that you should use a will as your primary asset transfer vehicle. In reality, this is not the case at all. There are a number of different reasons why you may want to use a trust instead of a will. We will look at some of them in this post.
Probate Realities
One of the misconceptions that people harbor about wills is the idea that a will is the simplest way to get property into the hands of your loved ones. It may be relatively easy to create the document with the proper legal assistance, but the matter of estate administration is another story.
You name an executor when you create a will. This person will act as the administrator after you are gone. When the time comes, the executor cannot simply read the will to the interested parties and then start to distribute the assets to the inheritors.
The will would be admitted to probate. During probate, the court would supervise the administration process. During this process, final debts are paid, and the court examines the will to determine its validity. Assets will be identified and inventoried. Then, they will be prepared for distribution.
This process does not run its course overnight. Creditors are given a certain amount of time to come forward. It can also take time to liquidate assets. No inheritances are distributed during this interim. It can take nine months to a year for the estate to be probated.
Anyone who has an interest can access probate records to find out what transpired, so privacy is lost. It also opens a window of opportunity for will challenges that may be presented by disgruntled parties. This can elongate an already time-consuming process.
Revocable Living Trust
If all of the above does not sound very appealing, you can simply utilize a revocable living trust instead of a will. When you have a trust, the trustee would be able to distribute assets to the beneficiaries outside of probate, so these negatives would never enter the picture.
Spendthrift Protections
A given individual may not be prepared to handle a significant inheritance that is received all at once. This is how it works if you use a simple will. You have options if you have a living trust.
You can include a spendthrift clause in the trust, limiting the beneficiaries access to the assets held in trust. The beneficiary would not be able to directly touch the principal, and the beneficiary’s creditors would “step into their shoes.” They would have no ability to reach the principal, because the beneficiary would not have this access.
This is the first level of asset protection. You can limit the distributions to the beneficiary and spread them out over an extended period. For example, you can instruct the trustee to distribute a certain amount every month.
Nursing Home Asset Protection
About 70 percent of seniors are going to require long-term care eventually, and over one-third of them will reside in nursing homes. According to Genworth Financial, the median annual cost for a private room in an Oklahoma City nursing home is close to $100,000, and Medicare does not pay for the custodial care that nursing homes provide.
Medicaid is the widely embraced solution because this program does pay for long-term care. As we all know, Medicaid is a need-based health insurance program, so you cannot qualify if you have significant assets in your own name.
With this in mind, you could convey assets into an income-only Medicaid trust. This would be an irrevocable trust, so you would not be able to touch the principal.
However, as the name would indicate, you could continue to receive the trust’s earnings as an ongoing source of income. If and when you apply for Medicaid, the principal will not count.
Schedule a Consultation Today!
If you are ready to put an estate plan in place, we are here to help. You can set up a consultation at our Oklahoma City estate planning office right now if you give us a call at 405-843-6100, and there is a contact form on this site you can use to send us a message.
We also make things easy for people in the Tulsa area with our local office there, and the number is 918-615-2700.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.