“Probate” is a legal term for the Court process of transferring assets out of a deceased person’s name and to that person’s heirs and/or beneficiaries. The difference between the term “heir” and the term “beneficiary” is that an heir is someone that would legally take if a person died without a Will. A person’s spouse, for example, or children (if they have either a split family or pass away without a spouse). A beneficiary is the term used for the person who is legally entitled to receive assets. An heir can be a beneficiary, but sometimes a beneficiary is not an heir. For example, I could sign a Will saying that all of my assets go to charity – the charity would be a beneficiary, but not an heir.
Two of the possible ways for people making arrangements for the disposition of their assets after their death are wills and irrevocable trusts. Each one has unique strengths. Here’s how the two compare and contrast so you can determine if one or the other is right for you. Don’t let the intricacies of estate planning keep you from deciding what happens to your assets after you die; work with a financial planner to take the estate planning steps that are best for you.
What is an Irrevocable Trust?
A trust is a legal vehicle where you can place your assets, either to keep there for a period of time or to distribute. The grantor, or creator, of the trust typically uses it to pass on these assets after they die to their beneficiaries. With a trust, there are also applications outside of death. For example, a trust maker might create a trust just in case they become incapacitated.
With this trust, you establish the trustee, or the person with a fiduciary responsibility to manage the trust, your beneficiaries, and transfer your assets. The grantor cannot act as the trustee nor the beneficiary, though. You give up control of your property, funds, etc., when you put them in an irrevocable trust. So, since the assets no longer belong to you, you typically cannot change the trust or its terms.
It’s easy to assume that writing up a last will and testament is all it takes to guarantee that your assets will be distributed according to your wishes. And in most parts of the United States, that’s basically correct. However, there are a handful of states with a caveat in place that can intervene to ensure you and your partner will receive your fair share of property whenever either of you expires.
There is no one perfect system when it comes to inheritance; some may reflect a person’s actual wishes in the event of an untimely death, while others may end up superseding what they had envisioned for their assets. There are three systems of inheritance laws in the U.S. It’s important to know which ones affect your state and, thus, your will.
Since most people don’t want to face their own mortality, it’s not hard to get why most people don’t create a will. But that’s far from the only shocking truth about wills. Estate attorney Jason J. Smith, an authority on how to avoid or defend contested wills, reveals several others in an interview with ThinkAdvisor.
1. Generally, “the only person you can’t completely disinherit is your spouse.”
2. “Children have no right to an inheritance.”
3. “The No. 1 predator reaching for an inheritance is a potentially divorcing spouse.”
4. “A disinherited child can essentially shake down” a parent’s estate.
Another truth, of particular interest to financial advisors with solo practices, is that after they die, the only folks who can legally operate their business and receive compensation are licensed FAs, Smith says.
With the coronavirus causing long delays to the process, here are the key points to remember.
Tens of thousands of bereaved families who have lost loved ones to coronavirus are dealing with the financial procedures that follow a death – called probate – but are encountering a system hit by delays and bureaucracy.
It usually takes about three to four months to sort out probate, which is essentially identifying the dead person’s assets, paying off any debts and sharing out the remaining estate according to the will.
Solicitors are warning, however, that even simple estates are taking months longer than normal to sort out. At the height of lockdown some solicitors were unable to access their offices to get physical wills, while obtaining details of bank accounts and investments has been fraught with delays.