When thinking about estate planning, most people think about a will and perhaps an advance directive. Some people consider having a power of attorney put in place for when they can’t make decisions for themselves. Many people aren’t aware that, while a last will and testament is an excellent way to express your final wishes after you are gone, it is limited in some ways. For many seniors, particularly if they have extensive assets, a trust may be a better way to leave an inheritance to their heirs or the individuals, organizations, or charities of their choice.
What Wills and Trusts Do
Both wills and trusts indicate how you want your property distributed after your death. You choose who gets what. In a will, you can also designate who you wish to as a guardian for any minor children. While this is not often a concern for seniors, if you are raising your grandchildren or have custody of a minor child, this is a consideration. You can revise either document before dying or becoming mentally incapacitated, although it is easier to change a will.
There are two primary forms of trust. A testamentary trust doesn’t go into effect until you pass away. In some cases, a will includes a testamentary trust that controls some of your assets on behalf of a beneficiary. A living trust holds your assets while you are still alive with a trustee in place who administers it on your behalf. When you die, the trust is administered on behalf of the beneficiaries.
Aspects of a Will
A last will and testament has several features that other legal documents, including the various types of trusts, don’t have. It doesn’t go into effect until after you die so that it won’t cover any situation arising out of your incapacity or illness. For that, you will need a living will or other estate planning documents.
When you draw up your will, you’ll need to choose an executor. This is the person who will make sure your wishes are carried out after you die. The probate court will supervise them as they execute your will, including paying any creditors, taking care of legal issues, and making sure your beneficiaries are paid.
Considering Heirs in a Will
A will lets you choose who will take care of minor children. If you are raising your grandchildren or responsible for an incapacitated individual, a will allows you to appoint a guardian for them who you trust. Be sure you talk to whomever you are considering for this and make sure they are willing to take on this kind of burden when you die, as it is a significant commitment.
Your will has to go through probate when you die, a legal process that takes anywhere from six months to two years. It is designed to ensure that all outstanding debts of the estate are paid. It also allows all potential heirs to come forward and stake a claim against the estate. Once the will is filed with the probate court, it becomes part of the public record, making your estate and its value a part of the public record.
Overall, the preparation and execution of a will are more straightforward than that of a trust.
Aspects of a Living Trust
The type of trust most often used in estate planning is a living trust, sometimes called a revocable trust. This takes effect as soon as you transfer your property and assets into it. It doesn’t wait until you die, and the property does not go directly to your heirs or beneficiaries. Instead, your assets go into the trust that is created.
Be sure to check the beneficiary designations and all your property, including life insurance policies and retirement accounts, to make sure they are changed to the name of the trust if you want them to go to the trust rather than directly to the named beneficiaries. It is best to talk to an experienced estate attorney about this and other considerations before making decisions to make sure you are making decisions that are the best for you and your loved ones.
Trusts Avoid Probate
One benefit of a trust is avoiding the probate process. If your property is transferred to a living trust, your beneficiaries won’t have to wait for months as the estate goes through probate. They will also avoid the probate administration fees and the costs of an executor. While you are alive, you can be the trustee of your trust, keeping you in total control of your assets. Appointing a successor trustee guarantees someone can administer your estate if you are incapacitated and after our death, seeing that your final wishes are met.
A trust is also more private than a will because it does not have to be filed with the probate court. Your assets and personal property will not be a part of the public record, so no one outside of the trust will know anything about your estate’s value. A revocable trust is also a good choice if there are personal reasons to keep the money under the control of a trustee to be used to benefit someone who may have a problem such as drug abuse.
Will vs. Trust
It can help to compare wills and trusts side-by-side before deciding which is right for you when you’re ready to start your estate planning. Consider these issues:
on behalf of a beneficiary?
Understanding and setting up a revocable trust that protects you and your beneficiaries isn’t a simple process. Sit down with a wealth management specialist or an estate planning expert to review your finances, property, and current living expenses. From there, you can determine whether you need a will or a living trust and any additional legal documents you should have in place during your golden years.