"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." - Warren Buffet
In a similar fashion, most of us spend the majority of our lives carefully and painstakingly accumulating wealth. The last thing we need is an ill-designed plan causing our wealth to flood out faster than it came in.
When designing your estate plan, you need to plan for both building wealth and protecting it in the future. You should take at least a few hours to sit down and design a plan for the disposition of this wealth. Your plan should be dynamic; considering transfers during your lifetime (inter vivos) as well as upon your death (testamentary). The art of developing this extensive plan is called estate planning.
The primary purpose of this process is to pass wealth to the next generation (or to a charity) with as little cost or difficulty as possible. The most common and popular vehicle for this goal is a revocable inter vivos trust, or "Living Trust." As the title indicates, a Living Trust is fully revocable at any time prior to your incapacity or death.
The Living Trust replaces the will as the primary vehicle for disposing of accumulated wealth. A simple will without a trust is inadequate to ensure the full utilization of the estate and gift tax benefits permitted by the federal government. A trust within a will (i.e., a testamentary trust) may be used; however, a Living Trust is less complex and it has additional advantages, including but not limited to, the following:
- Avoiding Probate
- Avoiding Guardianship
- Continuity of Management
- Liquidity
- Privacy
Assets held or titled in the name of your Living Trust do not pass through the judicial process of probate. These assets are nominally owned by the trustee of your trust (during your lifetime, you may choose to be the sole trustee). If you fully fund your Living Trust during your lifetime by placing all of the assets subject to probate into your trust, then your assets avoid the probate process. You will save your beneficiaries considerable time, cost and potential difficulties that are associated with the probate process.
More importantly, a properly drafted Living Trust will provide that if you become incapacitated (i.e., unable to handle financial affairs), your trustee or successor trustee will have control over your assets and take care of your costs of living and medical care. If you become incapacitated and have not executed a Living Trust, a guardian may need to be appointed to take care of your financial needs. Unfortunately, the guardianship law in Florida is very complex, costly, time-consuming and emotionally draining to have a guardian appointed.
Once your Living Trust is funded, the terms of the trust control how and when the assets of the trust are disposed of. Your subsequent incapacity or death does not necessarily affect the management of your trust assets. The trustee or successor trustee of your Living Trust will continue to manage your trust in accordance with your original plan. On the contrary, if you have a will but no Living Trust, all assets subject to probate will have to be transferred to the new owner pursuant to your will, after the probate court judge approves of the proposed plan of distribution.
The trustee or successor trustee may make immediate distributions from your trust upon your death or incapacity without any delay. Without a Living Trust, your assets may only be disposed of pursuant to your will after going through a lengthy probate process. (Early distributions may be made by your Personal Representative under your will if he or she is sure that sufficient assets are available to pay administrative expenses and claims against the estate.)
A will must be recorded with the probate court and, therefore, its contents are of public record. However, unlike a will, a Living Trust does not need to be filed with the court. As a result, the use of a Living Trust affords you a greater degree of privacy. Your personal affairs will never be a matter of public knowledge.