When considering instructions for your assets post-mortem, your two most common options will be a last will and testament and a trust. A will comes into effect upon your death, and so will a trust if it exists within your will, but a trust can also be effective upon its creation if it’s established as a freestanding entity. Trusts come in many varieties, including: revocable, irrevocable, with and without estate tax planning, charitable trusts, special needs trusts, marital trusts, dynasty trusts, etc.
When a loved one’s estate goes through probate, a person has to file a will into the public record. A lawyer then prepares documents to ask the court to approve the will — if there is one — and empower the executor of the estate. A clerk must then issue letters of office, and the executor values and collects the assets, and gives notice to all creditors; known creditors can be contacted directly, but any unknown creditors are notified by a notice in the newspaper. Then, the executor must file the estate tax return as necessary, and, once the claims period passes, the executor can divvy up the estate.
This probate process can take more than a year, and most people who have had loved ones’ estates go through the probate process come to understand the value of tools that can avoid probate.
With a trust, it’s easier to bypass probate, and the process becomes more streamlined. The will is still filed, but if it is a pour-over will, bequests do not all get entered into the public record. The successor trustee begins valuing and collecting assets, paying bills and expenses, and filing the estate tax returns reporting the value of the estate. Once the IRS and the State of Illinois approve the tax returns, the trustee distributes the assets according to the trust’s terms.
Avoiding probate can save time and money. You can transfer the house to your heirs faster from a trust than from probate.
As mentioned above, a will and testament is filed with the clerk of the circuit court in the county where the decedent resided at the time of their death. This is public record. However, when we create a trust, we create a pour-over will that keeps the details of the bequests within the trust and not the will. This allows for greater privacy and more protection from neighbors or friends inquiring about the particulars of asset instructions.
A trust can also create certain conditions, restrictions, or incentives to be carried out for any heirs after a decedent’s death. Importantly, a trust can establish rules for how and when disbursements are made by the trustee to any children, if/when children or grandchildren can request lump sums from the trust funds, and language that can protect children’s funds from creditors and ex-spouses.
These are the biggest benefits from establishing a trust: saving the exhausting efforts of probate, maintaining privacy, and keeping conditions intact. If you need help determining if a trust is right for you, contact our offices for a free consultation!