This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.
Having the ability to pass on an inheritance to your loved ones is a beautiful thing. It's a chance to gift those you care about and add value to their life even after you're no longer here. Unfortunately, one thing you'll find out while making it happen is that it's not always the smoothest process.
No one option makes sense for everyone, so some find themselves juggling different routes to take. That said, one option in particular worth exploring is a living trust (also known as a revocable trust). Many find that it helps ensure a smoother overall process. Here are three benefits you should know about.
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1. You could avoid the probate process
Probate is a court process in which the court determines if a will is valid and then supervises the distribution of the assets within the will. A lot of people who have gone through the probate process can attest to it being an unpleasant experience.
For some, having the court oversee the distribution process can bring peace of mind because it's more transparent, and they perceive a greater chance that the process is handled fairly. For others, this peace of mind doesn't outweigh the cons of the probate process.
The two main downsides to the probate process are the time and cost. The time it takes varies, but can often take months, or even years, to complete. It's also worth noting that while probate is going on, the intended beneficiaries may not have access to estate assets, potentially causing issues if they're depending on having that money available.
The cost of probate will also vary by state, but generally speaking, you can expect to pay court costs, lawyer fees, administrative fees, and other relevant expenses (such as accountant fees if the estate's finances are complex). These fees can add up quickly and eat into the inheritance meant to be left behind.
2. You're afforded more privacy than a will
When a will goes through probate, it typically becomes public information anyone can access. Information about the will's assets, their values, the beneficiaries, and such is all available for anyone who wants to look it up. Luckily, this isn't the case with a living trust because details don't typically become part of the public record. Living trusts provide a certain level of privacy that many find beneficial.
Imagine a situation in which someone wants to keep their financial situation private from distant family or financial predators. Having the privacy of a living trust could avoid unwanted attention from people who feel entitled to the inheritance or want to take advantage of someone who may not be financially savvy enough to spot financial scams.
3. You have more flexibility to adapt to changing life circumstances
Living trusts are sometimes referred to as revocable trusts because you can adjust or revoke them entirely. As long as certain events haven't already occurred to make the trust irrevocable, life changes like getting married, having a child, or an abrupt shift in your financial situation can make it a good idea to amend a living trust. And usually, it's not a big issue to make changes.
If you're making a minor change, it could typically be done with a simple amendment. If you're making a more significant change, it could require a redo of the trust. In both cases, you should be prepared to potentially pay additional attorney and administrative fees.
To be clear, you can also change or revoke wills. But it can be a more formal process that can be more costly.
If you are considering a living trust, consult an estate planning attorney to see if it makes sense for your situation. It's not the ideal route for everyone.
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