In our last post, we looked at three different reasons why you may want to use a trust instead of a will. We promised a second installment, and this is the conclusion of the two part series.
Streamlined and Efficient Estate Administration
A lot of people assume that the estate administration process is very simple and straightforward if you use a will as your primary vehicle of asset transfer. In reality, there are some rather burdensome steps that must be taken before the assets can be distributed to the heirs.
The executor that you name in the document will complete the hands-on tasks that must be addressed to bring your wishes to fruition. This individual will not be able to act independently immediately after your passing.
Under the laws of the state of Indiana, the will must be admitted to the legal process of probate. During probate, the court provides supervision while the estate is being administered.
Probate expenses include the executor’s payment, appraisal and liquidation charges, incidental administrative costs, and potential accounting and legal fees. Depending on the situation in question, the process could consume between three and seven percent of the value of the estate.
Anyone that wants to find out how the assets were distributed can access probate records. No one wants to lose privacy in this manner, and the information can cause hard feelings among interested parties.
The waiting game is another major negative. It could take six months to a year for the court to probate an estate, and more complicated cases can be stalled in probate for longer periods of time. No inheritances are distributed while the estate is being probated by the court.
If these details do not sound very attractive, you can avoid probate altogether if you use a living trust as the centerpiece of your estate plan. You would not lose control of the assets while you are living, because you could act as the trustee.
After your passing, the trustee would follow the terms that you recorded in the trust declaration. The assets would be distributed to the beneficiaries, and the probate court would not be involved.
Special Needs Planning
Many people with disabilities rely on need-based benefits. Medicaid is a source of health insurance, and the Supplemental Security Income (SSI) program provides a bit of cash on a monthly basis.
If you leave a direct inheritance to someone that is enrolled in these programs, eligibility could be lost because there is a $2,000 asset limit. As a response, you could make a person that is in this situation the beneficiary of a supplemental needs trust.
The trustee would be able to use assets in the trust to make the beneficiary more comfortable in innumerable different ways. As long as the guidelines are followed, ongoing eligibility for these benefits would not be jeopardized.
Estate Tax Efficiency
High net worth individuals have to be concerned about the potential ravages of the federal estate tax. This tax carries a hefty 40 percent maximum rate, but you can transfer a large amount before the tax would be applied on the remainder.
The sum that you can transfer tax-free is called the exclusion, and for the rest of 2020, it stands at $11.58 million.
In addition to the federal estate tax, there are 12 states that have state-level estate taxes, and the District of Columbia has one as well. Luckily, we do not have a state estate tax in Indiana, but if you own property in a state with an estate tax, it would apply to you.
State-level exclusions are typically much lower than the federal exclusion. For example, there are estate taxes in Massachusetts and Oregon with $1 million exclusions.
People that are exposed to estate taxes use irrevocable trusts to gain estate tax efficiency.
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We place an emphasis on education, because we find that informed people are motivated to take action to protect their legacies. You can access a great deal of written information right here on this website, and we also offer webinars on an ongoing basis.
The sessions are free to attend, but we ask that you register in advance so we can reserve your spot. You can see the dates and obtain registration information if you visit our webinar page