You’ve worked hard throughout your life and it’s only natural that you want to leave a legacy to your loved ones. It would be wise to find a way to preserve some assets. No one wants the IRS, creditors, or even a divorce to prevent your loved ones from enjoying the benefits of your inheritance. Although you are a modest person, you have assets. Your estate consists of all your personal and real estate, such as retirement accounts, home, jewelry, rare collections, etc. There are many strategies to ensure that your assets are distributed according to your wishes and in a timely manner. The most basic methods of transferring an inheritance are wills and living trusts, but which one is better for you?
So what is a will and how does it work?
A will is a document that directs the distribution of property owned by a person at the time of death. For a will to be effective, it must be completed according to your state’s statutory requirements. Generally, it must be in writing and signed by a person of sound mind and competent witnesses. It can be revoked or changed at any time during your lifetime, but each change to the will requires both you and your witness to sign again. After your death, the executor you choose must apply to the court to start the probate process. As part of the process, your property must be assessed for property tax purposes. The probate process can take anywhere from six months for a small, uncontested will to years if litigation is delayed. As with any legal proceeding, the will becomes part of the public record and is available for all to see.
…And what is a Living Trust and how does it work?
In a living trust, the grantor transfers assets to the trust, but may retain the authority to administer or revoke the trust. The foundation also gives the donor the opportunity to decide who will be the trustee’s successor and beneficiaries after death. If you act as your own trustee, the trust instrument provides a successor in the event of your death or incapacity. Therefore, there is no need for the court to intervene in the case of death and no evidence is required. The trust can also be useful if you are disabled due to an accident or illness; the successor can manage the property without a long trial. Because no trial is required, you can avoid the cost, publicity and inconvenience of a court-supervised division of assets.
A properly written and funded trust:
- Avoid probate of your assets;
- Plan for the possibility of your own disability;
- Control what happens to your assets after you die;
- Prevent your financial affairs from becoming a public matter.
Trusts can also include provisions for caring for family members with special needs. It may be in the interest of beneficiaries with special needs to have limited access to their inherited assets. A normal will transfers your assets to these heirs, but a will alone doesn’t give you much control over how their assets are used.
A trust can also be established in a way that minimizes real estate tax. If the value of your estate exceeds the current estate tax threshold, you may consider setting up a trust with tax planning provisions. A lawyer can advise you depending on your situation.
So the end result is…
A will is easy to prepare, requires little time and money, but can leave your loved ones with a heavy burden due to litigation. Trust is more sophisticated than will and it allows you to achieve much more than will, but don’t forget the fact that it requires more upfront effort and cost. However, a trust allows you to create provisions that allow you to feel peace of mind knowing that even though you are no longer with your loved ones, they will enjoy your legacy just as you were meant for them. When choosing between will and trust, remember that one size does not fit all. What suits one may not suit everyone. Contact your attorney; your estate plan should be drawn up in a way that best meets the needs of you and your family.