Posted by Zach Dana on May 6, 2019
The two most popular estate planning tools are wills and trusts. While each of the vehicles have benefits, you should understand what a will won’t do and the limitations and differences of a trust.
It is important to note that there are many different types of trusts available to you while wills are fairly standard. Trusts can be either revocable or irrevocable. A revocable trust can be adjusted as often as you’d like while irrevocable trusts are almost impossible to change. Some trusts, such as a charitable remainder trust or CRT, are designed to allow you to benefit from an income stream while eventually donating your assets to your favorite charity. Other trusts are utilized as tax savings vehicles or ways to bequeath your estate with very specific instructions such as time tables or generation skipping.
Wills are more standard documents which are used to name an executor, establish a guardian for the care of any minor children, give instructions on how to pay existing debts and how to distribute the remaining assets. Preparing for your last will and testament, you need to carefully consider each of these items. While every will may be unique to the person creating it, the will itself is a fairly standard document.
Typically, the last will and testament requirements are less than those of a living trust. The average cost of creating a will is $375, although specific requests and changes will increase the expense. Changes to your will using a codicil or an entirely new document will incur additional costs.
The fees for trusts range between $900 – $3500 and up, depending on the attorney and your needs (http://personalfinance.costhelper.com/trust.html). Don’t let the upfront cost dictate which tool is the most appropriate for you. If you could most benefit from a trust, the setup fees can certainly be worth the additional expense.
A significant difference between a will and trust is the level of privacy you are able to retain. A will must go through a legal process called probate. When you die, your executor must submit your will to the court. The probate court will determine the validity of your will and also inventory your estate’s assets, make sure all your verified debts are paid, and the remainder of your estate is distributed as dictated by your will. Probate is a public process, so your will and its provisions will become part of the public record. This means anyone can look up and review your will and its contents.
If you are a person that values your privacy, you can avoid probate by creating a trust. With a trust, when you die your successor trustee simply distributes the estate as laid out in your trust. When choosing your successor trustee, make sure this is a person that you trust and the he or she is capable of performing the duties involved. Provided your trust is setup correctly, all necessary assets are included, and your trustee does his or her job properly, your estate should be able to avoid probate altogether. By staying out of court you are able to maintain the privacy of your trust and its provisions.
A will is a document that instructs an executor of your choosing on how to distribute your estate after your death. A trust is established while you are still living and can go into effect immediately. With a will, you continue to own your assets and they are not distributed to your heirs until after your death. A trust works very differently. For a trust to be effective you actually have to move your assets into the trust. This is accomplished by retitling your accounts to the name of the trust. Depending on the type of trust, you may continue to benefit from the income and assets of the trust but you will no longer own them. When you die, your designated successor trustee will distribute the remaining assets as you designated in the trust.
A will does not go into effect until you die. This means it has no provisions for a major illness or disability. If you were in a car accident and became comatose, a will does not have any bearing on who handles decisions regarding your estate. Your will would not take effect until you actually pass away.
A living trust, however becomes valid as soon as it is established. As part of your trust you can nominate a healthcare and financial representative to handle your estate if you were to become incapacitated. This means if you were to suffer an injury and become unable to make financial or medical decisions on your own, your trust could be used to identify the people that you selected to make these decisions in your place.
When considering your estate planning options, you need to carefully inventory your assets and debts and weigh your needs and goals. Work with a skilled estate planning expert like the office of Dana Law Group to help find and execute the best strategy for you.