People sometimes go forward with bits and pieces of information about estate planning, and as a result, they can make mistakes because they do not see the full picture. They say that a little bit of information can be a dangerous thing, and this is something to keep in mind when you are engaged in your estate planning efforts.
Wills and trusts are sometimes misunderstood, so in this blog post, we are going to look at five things that you definitely should know about wills and trusts.
1.) Things may not be as simple as they would appear to be on the surface if you use a last will.
When you think about wills and trusts, you may envision trusts us complicated legal devices that are only used by very wealthy people. It can seem as though a last will is the simplest and most efficient estate planning document to utilize if you are not a multimillionaire.
The idea is that the executor that is named in the will can distribute assets to the inheritors immediately after the death of the decedent. In fact, this is not the case.
If you were to use a will to state your final wishes regarding the way that you want your personal property distributed, the executor would be required to admit the will to probate. The probate court would supervise the administration of the estate.
This process is time-consuming, and considerable expenses can accumulate during probate. Plus, it opens up a window of opportunity for anyone who may want to challenge the will, and probate records are available to the general public.
When you put all of this together, you can see that the estate administration process can be complicated and potentially problematic if you use a last will as your assets transfer vehicle.
2.) A living will should be part of your plan.
In addition to the last will, there are other types of wills that are used in the field of estate planning. One of them is the living will. This type of will has nothing to do with financial matters. A living will is an advance directive for health care. With a living will, you make your wishes known with regard to the utilization of life-sustaining measures like feeding tubes and mechanical respiration.
3.) A living trust can be useful for people who are not extremely wealthy.
If you want to avoid the probate pitfalls that we looked at previously, you could use a revocable living trust as your primary asset transfer vehicle. You do not have to be among the financial elite to benefit from the creation of a revocable living trust.
Assets in a living trust could be distributed among the beneficiaries outside of the probate process, so the inheritors can typically receive distributions in a more timely manner. Plus, you can include spendthrift protections if you use a living trust instead of a last will.
4.) Trusts can provide estate tax efficiency.
High net worth families have to be concerned about the potential impact of the federal estate tax. This tax can be applied on the portion of an estate that exceeds $5.49 million in value. This figure is called the estate tax credit or exclusion.
Assets in a revocable living trust would be part of your estate for tax purposes, because you would have the right of revocation. You could dissolve the trust and take back the assets, so you retain incidents of ownership.
Things are different with an irrevocable trust. There are various different types of irrevocable trusts that can be used to provide estate tax efficiency if the value of your estate exceeds the amount of the exclusion.
5.) A trust can provide nursing home asset protection.
Most senior citizens will need long-term care eventually, and 25 percent of people who are 85 years of age and older are residing in nursing homes. Medicare does not pay for nursing home care, and these facilities are extremely expensive.
Medi-Cal will pay for nursing home care, but you cannot qualify if you have significant assets in your own name. Assets that have been conveyed into an irrevocable Medi-Cal trust at the right time would not be counted if you were to apply for Medi-Cal.
Download Our Special Report
We have prepared an in-depth special report that will provide you with added layers of information about wills and trusts. This report is being offered to our readers free of charge right now, and you can access your copy through this website.
To access the download, click this link: Free Report on Wills and Trusts.
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