Many problems surface due to inadequate estate planning. Certain precautions need to be taken when leaving a large estate, especially if it is all being left to one person. The pressure of receiving a large sum of money outright can cause the recipient of a will to become overwhelmed. That person could be left with a lot of questions as to how to handle the money responsibly and nowhere to turn for answers. Leaving a Living Trust, on the other hand, can provide guidance, protection, and account for gruesome taxes that a will cannot.
Confidentiality is of concern when a large sum of money remains after ones death. We all appreciate our privacy but the only way to assure full discretion after death is to use a Living Trust. Otherwise, one’s personal estate affairs can come under public examination, and are easy to find by simply searching on the internet. This adds to the pressure of the beneficiary. Living Trusts are similar to private contracts. They allow assets to be transferred in such a way that the public gains little knowledge of the disposition and is not subject to court procedure.
Under a will, the recipient collects the inheritance directly and free of trust. It can be set up for the recipient to receive a certain percent of the inheritance at certain ages but once the assets and royalties leave the trust, no protection is guaranteed. The recipient can become victim to creditors, litigations, assailants, and many other things. A living Trust, however, provides necessary protection of the inheritance and peace of mind for the beneficiary.
Protection is not the only thing to look out for though. Taxes are something to consider when planning a will or Living Trust. A federal estate tax rate of 35% is imposed on anything over $5,120,000, not to mention the estate tax laws of each state. These estate taxes are passed from generation to generation. This means that when the inheritance is under the recipient’s estate, and the recipient dies, the taxes will again be imposed on the estate. To avoid this, a trust can be set up for the benefit of the inheritor rather than receiving the money outright. This will minimize the amount of taxes to be paid on the account.
Not only can a Living Trust help avoid steep estate taxes, it can also provide guidance for the recipient. This is important, especially when the recipient is young and does not know a lot about handling money wisely. Obtaining a large sum of money as a young adult can be daunting. Using a personal asset protection lifetime trust allows the recipient to have a professional Trustee to help manage the estate and arrange for flexible distributions as necessary. Also, addiction protection provisions can be written into the trust in case the inheritor turns to drugs for any reason, such as a response to the loved ones death. In the event of drug or alcohol abuse, the trustee can suspend distributions or allocate the money to counseling or another type of treatment. In addition, mentors can be named in the trust in order to advise the recipient in tricky situations. This way, the recipient has many people to look toward for assistance with the inheritance. A simple will cannot provide this amount of guidance, but a Living Trust can.
If a will was written a long time ago, or even just a few years ago, it would be beneficial to review its contents and think about updating it to mesh with current financial demands. Handling an inheritance sensibly takes a lot of work but much of the hassle can be avoided with the guidance, protection and tax avoidance that a Living Trust offers.
