Proper retirement planning is more than just budgeting, tax planning, and investing. It should also include estate planning.
Estate planning is the process of laying out how your assets will be managed and distributed after your death. Although it could seem a little morbid to do, being proactive about it can save your loved ones a lot of time, stress, and money.
There are a few ways to leave behind your assets, including via a living trust. Although a living trust may not be the best option for everyone, it offers several benefits that make it worth considering. Let's discuss three.
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1. You can avoid the probate process
Probate is a process where a court confirms the validity of a will and oversees the distribution of your assets.
Having a court oversee the process can help prevent disputes or fraud. On the other hand, the probate process isn't all smooth sailing. It can be lengthy and expensive.
Depending on your state's laws, the probate process could take months or even years, and the beneficiaries likely won't have access to the assets during this time. This could be a major inconvenience if they need the funds for urgent expenses (like funeral costs or mortgage payments).
The cost associated with probate will vary by state and the complexity of your estate, but you can generally expect it to be a percentage of your estate's value.
2. You have more privacy
When a will goes through the probate process, it becomes part of the public record. This means that anyone can access information such as beneficiary names, assets left behind, and the value of those assets.
For some families, having this information in the public record may not matter because their estates are relatively modest and they have no privacy concerns. However, for public figures or high-net-worth individuals, this could present some issues.
For example, imagine if a wealthy person leaves a young beneficiary with a large lump sum of cash. This could attract unwanted attention from people with bad intentions or cause tension with someone else who may have felt entitled to some of the inheritance.
A living trust provides the privacy that could help prevent some of these issues.
3. It helps manage assets better if you become incapacitated
Incapacitation is when someone becomes physically or mentally unable to make important life decisions.
Unfortunately, in most cases, this means a court would need to appoint someone to handle your affairs, which isn't the easiest process. Luckily, living trusts allow you to include instructions on how your trust should be managed and handled if you're unable to do so due to an illness or other causes.
Whoever you choose as your successor trustee will have the power to manage your assets and other financial affairs without needing to get a court to appoint someone.
