When it comes to making plans for the future, you may have already given thought to how you would like to distribute your assets after something happen s to you. Perhaps you’ve even written a will. But many legal and tax advisers caution their clients against using a will alone to distribute assets after death.
Here are just a few reasons why:
- Loss of privacy: After an individual dies, his or her will is entered into probate court, where its contents become public.
- Delayed access to cash: Assets passing through probate also can be vulnerable to delays, challenges and court costs, which can mean that cash to pay final expenses of the estate can be tied up for long periods of time.
- Increased taxes: Assets that are distributed to heirs through a will are subject to estate taxes. Assets distributed through an irrevocable trust may receive more favorable estate tax treatment because the assets have been removed from the taxable estate through lifetime gifts, which may have incurred gift taxes.
Several strategies are available to avoid the public disclosures that occur during the probate process, including passing assets through life insurance, annuities and retirement plans. Trusts can be valuable in providing both privacy and continuing management and distribution of assets. And all of these strategies are part of the estate planning process.