Estate Planning Documents

Are You Sure a Will Is the Only Logical Choice?

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Estate Planning DocumentsOne of the most common misconceptions related to estate planning is the idea that trusts are only for the wealthy. A lot of people think that a will is the only logical choice for most of us, but this is not the case at all.

Let’s look at five compelling reasons to use a trust instead of a will when you’re planning your estate.

Streamlined Estate Administration

When a will is used to transfer assets, the executor named in the document cannot act independently. Under Texas law, the will would be admitted to probate, and the court would supervise during the administration process.

It serves a purpose, because final debts are paid and the court determines the validity of the will. However, if you are named in a will as an inheritor, the process is less than ideal.

First, there is the waiting game. No inheritances are distributed while the estate is being probated, and you are looking at six months at a minimum in most cases. More complicated situations can take considerably longer.

Secondly, probate is a public proceeding, so the records can be accessed by anyone with an interest. As a result, there is a loss of privacy that can have a negative impact on multiple levels.

Thirdly, the process is not free. The executor is entitled to remuneration, and they may engage a probate lawyer and an accountant. You can add in the filing fee along with appraisals, liquidation charges, and incidentals. In the end, a noticeable portion of the estate will evaporate.

If all of that does not sound very appealing, you can avoid it with a living trust. You would be the trustee while you are living, and you name a successor to assume the role after your passing.

When the time comes, the successor trustee distributes the assets to the beneficiaries outside of probate. As a result, all the drawbacks that we looked at above never enter the picture.

Spendthrift Protections

Inheritors named in a will receive lump sum inheritances all at once. This can be a source of concern if you are leaving a bequest to someone who is not good with money.

As an alternative, you could create a living trust with a spendthrift provision and built-in guardrails.

After you are gone, the trust would become irrevocable. The beneficiary would have no direct access to the principal, and their creditors would “step into their shoes” in a legal sense.

The beneficiary can’t reach the principal, so the same dynamic would apply to their creditors. Moreover, you can leave instructions about the way the assets are distributed. For example, you can allow for limited monthly distributions over a number of years to prevent reckless spending.

Special Needs Planning

Let’s say that you want to leave an inheritance to a family member with a disability. They rely on Medicaid for health insurance, and they receive some monthly cash via Supplemental Security Income.

These are need-based benefits, so an improvement in financial status can cause a loss of eligibility. Ultimately, the inheritance could cause more harm than good.

In a situation like this, you could establish and fund a supplemental needs trust. The trustee that you name would manage the assets on behalf of the beneficiary. Under the rules of these programs, the trustee could use the assets to enhance the beneficiary’s life in many ways.

Since the beneficiary never actually owned the assets, government benefit eligibility is not impacted. Plus, Medicaid would not be able to reach assets that remain in the trust during reimbursement efforts after the death of the beneficiary.

Pet Planning

Loneliness is a major problem among senior citizens. Many elders lose their spouses along with friends and extended family members. Children and grandchildren may live elsewhere, and even if distance is no problem, spare time can be sparse.

Pet ownership can make all the difference, but there can be longevity concerns. Fortunately, there is a solution if you find yourself in this situation.

You could get yourself a dog or cat and establish and fund a pet trust. In the trust declaration, you name a trustee, and you record your wishes about the way you want your pet to be cared for after your passing.

If you predecease the pet, the trustee will be legally bound to follow your instructions and see to the pet’s care. Anything that is left in the trust after the death of the pet would go to a successor beneficiary that you name when you create the trust.

Nursing Home Asset Protection

Just over half of senior citizens will incur long-term care expenses, but nursing homes and in-home caregivers provide custodial care rather than medical care. As a result, Medicare will not pick up the tab if you require long-term custodial care as an elder.

This type of assistance is extremely expensive, but there is a widely embraced solution. Medicaid does cover long-term care if you can gain eligibility, but you can’t qualify if you have more than $2,000 in countable assets.

In an effort to gain future eligibility, you could create and fund an irrevocable Medicaid trust. After you transfer assets to the trust, you would surrender access to the principal. But, you could continue to receive distributions of the earnings generated by assets in the trust.

Many retired people depend on invested income, and they have no intention of spending the principal anyway. If you are in this situation, nothing would really change if you implement this strategy.

As long as you fund the trust at least five years before you apply for Medicaid, the assets in the trust would not count.

Attend a Free Seminar!

Since you’re here, you must be looking for information about estate planning in the Ft. Worth/Southlake area, and you are in the right place. In addition to the written materials on our website, we host complimentary live workshops.

You will learn a lot if you join us, and this is a great way to make an initial connection with our firm. To learn more, visit this page: estate planning events

Brandon McGee
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