When you get start to think about estate planning in earnest, you are naturally going to consider how you want to slice up the pie as it were. After you have made your decisions, you will be executing a will or a trust to direct the asset transfers.
You should understand the estate administration process before you make a decisions with regard to the asset transfer vehicle. The choices that you make will impact the inheritance distributions, and you should understand the tasks that must be completed.
Simple Wills and Probate
A lot of people think that the least complicated estate planning document is the simple will. It may not be that difficult to execute a will, but the administration process is another matter.
If you were to use a will, you would name an executor to act as the estate administrator. After your passing, the executor would admit the will to probate, and the Surrogate’s Court would provide supervision during the estate administration process.
The executor would notify the beneficiaries and identify and inventory the assets. A Tax Identification Number would be obtained, and the executor will start a bank account for the estate. Creditors are given seven months to make claims against the estate.
In addition to other types of creditors, final taxes must be paid, and appraisals and liquidation may be necessary before the assets can be distributed to the heirs.
When everything is in order, the court will close the estate and the inheritors will receive their bequests.
Living Trust Administration
There are a number of different types of trusts, but the trust that is most widely utilized is the revocable living trust. We will stick to an explanation of living trust administration here for simplicity’s sake.
The first thing to understand about the administration of a living trust is the simple fact that it is not subject to probate. This is an advantage, because probate will typically take 9 to 18 months to run its course, and no inheritances are distributed during this interim.
There are probate expenses that accumulate, and this is another drawback. Another negative is the loss of privacy. Anyone that is interested can access probate records to find out how the resources were distributed.
When you have a living trust, you act as the trustee while you are alive, so you have direct access to all of the assets in the trust. You can add additional property into the trust at any time, and you can utilize the assets as you see fit.
In the trust declaration, you name a trustee to succeed you after your passing, and your heirs would be designated as the beneficiaries. The trustee can be someone that you know personally, but many people will engage a trust company or the trust department of a bank.
During the administration process, the tasks that must be completed by the trustee are similar to the executor’s duties. Aside from the avoidance of probate, another major difference is the fact that all of the resources are consolidated, and this simplifies the asset identification process.
As the grantor of a revocable living trust, you decide how the trust will be closed. You can instruct the trustee to distribute all the assets after they have been properly prepared and close the trust.
Some people will dictate terms that allow for limited distributions over extended periods of time. This is necessary if there is a minor beneficiary, and it is also a solution for spendthrift adults.
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