Wills and trusts are important components of a good estate plan. A well prepared estate plan will help you ensure that your wishes are carried out and your loved ones are taken care of once you have passed on. It also helps avoid having to sort things out in court.
The Basics on Wills
Wills vary from simple to complex, depending on the size of the estate and the preferences of the testator. Wills outline who will receive property and assets and even include instructions about guardianship for minor children and the formation of after-death trusts. Pensions, bank accounts and insurance policy proceedings must go to the named beneficiary. It is important to note that some wills may not distribute property, such as property held in joint tenancy. However, in order for a will to be valid, there are required legal rules. The testator must be an adult of sound mind, the testator must sign it, the signature must be witnessed and notarized.
A will names an executor to perform the specific tasks of the will. This personal representative manages the testator’s assets, pays off debts and collects on debts, pays estate taxes and files all the required court and tax documents for the estate. If an individual dies without a will, the process of distributing assets can be complicated and time consuming. The probate court will then manage the will, and the assets are distributed to surviving relatives. Dying without a will also leaves the door open to a heavy burden on estate taxes.
The Basics on Trusts
Trusts are estate-planning tools that can help you manage property while you’re alive and also ensure a smooth transition of financial affairs after death. Trusts are made up of two broad categories: testamentary and living. A testamentary trust is specified in a will and allows the grantor to outline conditions for receipt of assets in addition to spreading out benefits over a specified period of time. Also known as an inter vivos trust, a living trust is effective during the life of the grantor and continues after death. It may be irrevocable or revocable. As the names imply, an irrevocable trust cannot be changed once created while a revocable trust can. Revocable trusts are a popular means of avoiding probate and are often accompanied with a pour over will.
There are other types of trusts, including special needs, charitable, constructive, asset protection and tax bypass trusts. Each one is designed to meet specific purposes. For example, those with a special needs child usually set up a special needs trust for monies to be allocated for the lifelong needs of the child. Plus, this type of trust allows the beneficiary to keep government benefits.
Both wills and trusts have important tax, probate and personal ramifications. To ensure that you select the right type of wills or trusts for your individual circumstances, an experienced estate planning attorney can help. These professionals know way more than just the basics. I can assist in your estate planning needs and help you avoid probate.