The debate is not as contentious as "Mary Ann or Ginger?" (you must be a "baby boomer" to get that). But some attorneys have drawn battle lines over their own "Gilligan's Island" dilemma: which is better, a will or living trust. Kind of like my answer to the "Mary Ann or Ginger?" question ... I think both are great, it just depends on your personal preference.
So, what are some of the considerations in deciding between whether a will or living trust is just right for you?
A recent article in Time, titled "Why This Estate Planning Tool Beats Just Having a Will," gives several reasons to consider living trusts. I am going to give you my take to balance the article's slant in favor of living trusts.
The estate can be settled more quickly. The assets in a trust are not required to go through the probate process. However, assets not properly titled in the trust now or upon death by a beneficiary designation arrangement will still be subject to probate.
The probate process is bashed as lengthy and expensive by its critics. True, if there is no clear record of the estate assets left behind by the decedent, then it may take some time to complete that oftentimes unpleasant "treasure hunt" as the personal representative (i.e., also known as an "executor") searches high and low. Probate can be expensive, especially if your state has statutory minimum probate fees based the value of the assets passing under the will. Missouri is such a state, but Kansas is not.
Most states have simplified and expedited forms of probate now. Instead of the stereotypical court-supervised (read "micromanaged") process, probate can be unsupervised with very little court oversight. In addition, when the value of assets passing through probate (sans real estate) is less than $40,000 in Kansas or Missouri, a Small Estates Affidavit is all you need. And that does not require opening a probate action.
Also, original article reminds us that when most of the estate is in IRAs or life insurance, you may bypass probate if you have named beneficiaries.
You get "back-up investment help". If you create a trust, you will need to name a trustee. The trustee is tasked with managing the assets, paying any taxes, keeping financial records, and disbursing payments to the beneficiaries. There might also be a successor trustee named in cases where you are managing the trust yourself. If so, you have someone to take over the trust duties in the event you become disabled or incapacitated and cannot manage your money for yourself. This is an advantage to a living trust, in my opinion. If you are incapacitated, the trustee actually assumes "legal title" on behalf of your trust and manages the assets per your instructions in the trust. Third party institutions are more likely to deal with your trustee versus your agent appointed under your general durable power of attorney.
You get to set things up for your children. Regardless whether you create it under your living trust or your will, you should also consider an inheritance trust to eventually manage the inheritance for any minor children or heirs with special needs. A nice feature of an inheritance trust is that you have the option to add terms that detail how and when a child is entitled to receive the assets. And, since a living trust and any inheritance trust it eventually creates are not a matter of public record (i.e., filed with the probate court), the distributions for your children are protected from prying eyes of outsiders. That is an advantage of living trusts over will. Privacy.
Finally, the original article reminds us that you should not transfer (retitle) an IRA to a living trust because it is counted as a withdrawal. This could mean a substantial financial penalty in terms of both income taxes and excise taxes, depending on your age.
After you have read the original article, contact an experienced estate planning attorney.
Together, you will want to go over all of the details of your situation and together see if a trust or a will is best to help you and your family.
After all, you do not want your estate plan to get shipwrecked.
Sorry. I just could not resist.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: Time (October 6, 2014) "Why This Estate Planning Tool Beats Just Having a Will"
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