Imagine a scenario where a parent passes away with four children and $400,000 in assets. The parent created a will stating that each child will inherit one-fourth of his estate. That sounds simple enough, right? Unfortunately, just such a scenario often turns into a long legal fight between siblings. Even in cases of modest wealth, relationships that become strained over an inheritance battle rarely recover.
Although a will can be a useful estate planning tool, it also has many shortcomings. A will is essentially a list of instructions regarding how a deceased person’s property should be distributed. A will generally has little value until an estate enters the probate process. Once an estate has entered probate, a judge will determine how assets are distributed using the will as a guide. Unfortunately, the probate process can be lengthy and expensive. Additionally, private information will likely become public during probate proceedings.
In order to avoid probate, many people set up a revocable trust, a tool that can enable you to transfer ownership of assets without going through a frequently lengthy probate process. Normally, when someone creates a revocable trust, a provision in the document provides that all of the individual’s assets are transferred into the trust upon death. The owner of a revocable trust will also choose a trustee who will manage any assets placed in the trust. A well-planned trust document will provide for possible contingencies and leave little ambiguity that may lead to later disagreements. Although litigation may still arise even after a revocable trust is created, the likelihood of conflict between heirs is lessened.
Another possible legal battle waiting to happen in many families stems from an individual’s unexpected disability or incapacitation. Although older folks tend to worry more frequently about who will make decisions for them in the event of a stroke or other illness, disability from an unexpected accident or other cause is a real risk for many young people. Because of this, everyone should create a living will that outlines what sort of medical treatment to provide in the event of incapacitation and choose a healthcare proxy who will make medical decisions on their behalf. By creating such documents, an individual may have the ability to keep loved ones from battling over their best interests before a judge.