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Nearly everyone has some familiarity with the function of a will and most have at least heard of a living trust, however a majority of people are unclear as to why they should choose one over the other. In fact, there is a common misconception that most people only need a will and that the wealthy only need a trust. While this may be true in some circumstances, everyone should investigate both options before choosing one or the other.
Wills
A will is a document that details how you would like the probate court to distribute your property and handle your affairs upon your death. After your death, the probate court takes a properly created will and name an executor (if one is not named on your will) who will be responsible for managing the affairs of your estate as it is processed through probate. Even though a will may clearly state your desires, the probate court must oversee the entire process to assure that it is all done fairly and according to your desires. Additionally, a will becomes public record since it is submitted to the court which can be problematic for anyone with a sense of privacy over their financial affairs.
Living Trusts
A living trust, unlike a will, does not require your beneficiaries to submit to the probate process since a living trust appoints a trustee who is responsible for managing the trust property. The terms of the living trust describe how you would like your property distributed and with a trust your can maintain some level of control over your property even after you pass away. The main advantages of having a living trust are to: 1) Minimize probate; 2) Tax planning; 3) Protect your beneficiaries' inheritance from debt collections; 4) Plan for special circumstances (i.e. special needs of an heir, desire to regulate the way property is given to a beneficiary, etc). Additionally, since a living trust is not submitted to a court, the terms of the trust are not made public.
How Do I Know if I Need a Will or Living Trust?
Whether or not you need a will or trust will depend on a number of factors. In general, the primary factor to consider is the total value of your possessions and property. Depending on the state you live in, a will may suffice if your estate is minimal because the impact of probate can be relatively small. However, probate costs and complications for those who own a home or land generally require them to create a trust rather than a will.
Most understand that it is generally less expensive to prepare a will rather than a living trust; however the minor savings of a will is greatly offset by the expense and burden of probate. In the end, however, as will most things that deal with your legal rights and your money, you should discuss your particular circumstance with a legal professional in order to determine the best course of action.
A common misunderstanding is that estate planning is just for the wealthy. In fact, an “estate plan” comprises of much more that just the distribution of wealth using a will or trust. Most understand that an “estate plan” is used to express a person’s wishes concerning his/her property after they pass away, however, few know that an “estate plan” is also used to protect someone’s wishes concerning their property and health in case they become incapacitated and unable to express their desires.
There are many reasons why people in various circumstances implement an estate plan. Here are a few examples:
- You have children and you want to determine who should be the guardian and how they are cared for if you were unexpectedly absent.
- You have possessions which you would like to give to a specific person or persons.
- You would like to control the types of medical treatment you receive if you are incapacitated. (This may include your desire for diagnostic testing, surgical procedures, cardiopulmonary resuscitation and organ donation)
- You want to control how your friends/family receive and use the money you leave behind.
- You want a avoid probate.
- You want to avoid estate taxes.
- You have a business that you would like to continue after your death.
- You plan to give money to a family member or friend and are concerned about the tax implications.
A true “estate plan” may not only involve financial and tax planning but also medical, incapacity and business planning. A will or trust is only one part of that planning process. Other documents are needed to fully create an “estate plan.
If any of these concerns apply to you and you have not yet created an estate plan, you should consult with a legal advisor.
Certainly probate is a dirty word for most, especially for those who have first hand experience. Many people have heard of probate and most have a good idea of what probate is, however, a more clear and concise understanding of what probate is will help avoid it, if necessary.
Probate is the process by which the court determines how your property is to be divided after a person passes away. The court will divide the decedent’s money and property between his/her heirs, creditors and attorneys. In fact, court and attorney’s fees will typically range between 3-7% of the total estate’s value. Further, probate is very time consuming, generally lasting from 9 months up to 2 years.
A common misconception is that a person who dies with a Will (“testate”) can avoid probate. Unfortunately, a Will must still be submitted to the scrutiny of the court to determine if it is valid, to hear any objections to the Will, to order payment to creditors and to supervise the process to assure that the remaining property is distributed according to the mandates in the Will. However, a Will is better than nothing at all, since it still gives a person some control after they pass away.
When a person dies without a Will (“intestate”) the probate court will appoint a personal representative (“administrator”) to manage the claims against the deceased person's estate. In addition, the administrator will pay creditors and attorneys, and then distribute any remaining property. When a person passes away without a Will or Trust all power of distribution is lost and their property is subject to the laws of the state.
In most instances, the best alternative to probate is the implementation a Living Trust or other estate planning instrument, which will bypass probate altogether.