A comprehensive estate plan has many parts. The most common of these is a will and a living trust, which work together to help you and your family plan for the future.
Often, people ask me “why have a trust instead of a will?” or “will or trust: which is better?” or “who needs a trust fund anyway – isn’t that just for the super-rich?”
Actually, you don’t have to choose one or the other – both of them work together to help you plan ahead for your legacy. In the most common situation, an estate plan would include a will and a living trust, sometimes also called a revocable trust or revocable living trust.
A will is basically a set of directions to a court about what to do with your estate after your death: it explains what you want to happen to your property, money, personal items, etc.
A trust, unlike a will, is a contract – think of it as an agreement between you and your legacy. There is no court supervision – instead, your chosen trustee carries out your wishes, thus avoiding court supervision (and public scrutiny).
A will, formally known as a “last will and testament” is filed with a court, and then the executor or administrator is in charge of making sure it is carried out, under court supervision. For centuries, a will was the main legal document that directed how a person’s assets or estate would be treated after their death. And it can still do that – especially if your estate is simple or modest.
A trust, unlike a will, is a contract – think of it as an agreement between you and your legacy. A trust document creates a legal entity that can carry out your wishes. It can control how your property, money, and belongings are treated, but it has greater flexibility and often much broader powers than a simple will. Trusts have also existed for centuries, but in recent years they have become crucial for even simple estate plans.
The most basic kind of trust is a living revocable trust. Living means that it is created in your lifetime — and you control the assets while you live. Revocable means that you can change it any time up until you die — but not after. Many people find a living revocable trust helps them control their assets during their life, and direct what happens to them after death. In some cases, other kinds of trusts are helpful. But sometimes, other kinds of trusts are useful, too.
In some situations, more complex kinds of trust are needed. Irrevocable trusts, can’t be changed after they are created, but often provide tax advantages or other important protections. Many times irrevocable trusts have a single specific purpose — and they are often created along with a revocable trust, as part of a comprehensive estate plan. There is no set formula for when an irrevocable trust is necessary — the decision requires thoughtful consideration of your circumstances and your future wishes.
There are several parts to an estate plan, one of them being a living trust. Common factors that prompt someone to create trust include privacy, tax benefits, avoiding probate, and caring for family members with special needs. Estate planning also lets you dictate how your assets will pass on to future generations after your death.
A trust only controls assets that get formally placed into the trust. While many of your assets, belongings, and property can be put into the trust before death, it doesn’t make sense to do that for everything. A will is there to provide guidance for those items – or to as a mechanism to put them into the trust at death. And, having both a will and a trust can help avoid disputes among your heirs.
One of the primary reasons for creating an estate plan is to avoid probate. Unlike a will, a fully-funded living trust will avoid probate, typically a lengthy and costly court-supervised process. Probate includes locating and determining the value of the deceased’s assets, paying off any outstanding bills and taxes, and then distributing the remaining value of the estate to the deceased’s rightful beneficiaries or heirs.
Avoiding probate is often a top reason for estate planning, and there is no surprise as to why. First, probate can be a costly way to transfer your assets upon death. Second, it is very time-consuming for your family. It can take from six to nine months (or even longer) to complete the probate process. Complications, such as a contested will or an inability to find clear records of all of the deceased’s assets and debts, can extend this timeline. Finally, probate proceedings are a matter of public record so when your estate goes through this process, there is no privacy.
While a living trust can help you avoid probate, it can also provide you with tax savings, especially if your estate is subject to death taxes (also known as estate and gift taxes). Of course, there are many types of trusts. One way to think about the variety is to consider a toolbox. For example, there are numerous kinds of screwdrivers, hammers, power tools, and so on. Each tool has an intended use. Trusts are no different. When you work with us, we’ll make sure to align the type of trust with the tax-saving needs and other goals of your family.
It is important to remember that trust only controls assets that are in the trust. In other words, you must place these assets in the trust – commonly referred to as “funding” the trust. Moreover, because our lives are always changing (marriage, childbirth, home purchase, etc.) and so are tax laws, it is essential to continually update and monitor the funding of your plan.
You don’t have to go it alone. We are here to help you and your family come up with an estate plan that is tailored to your situation, so you can have peace of mind now, and help create a trouble-free legacy for your loved ones.
You will want to work closely with your estate planning attorney to make sure your assets are properly aligned with your trust. This will not only help you get organized, but it will also make things easier for your heirs when you pass away.