A few years ago, I was in a pretty serious car accident. During the aftermath, I became really familiar with a lot of different types of lawyers. I worked with personal injury lawyers, insurance lawyers, and many others. Perhaps the most important, though, was the estate planning lawyer. I was really young, and neither my wife or I had thought about starting a will. But the accident kind of scared us into it. What would happen if one of us were to die? Even when still in the hospital, I was working with the lawyer to draw up a will. Now, I have some peace and security about what the future will be like if something should happen to me. And I have a lot of experience working with various types of lawyers! The accident was kind of a blessing in disguise in that way.
If you've been trying to decide how your estate should be divided after you pass away, you're probably familiar with writing a will. Although many people neglect to write a will before they pass, they're the common choice for specifying how assets should be distributed among friends, family and charity. However, you also have the option of forming a living trust in order to decide how your assets should be divided. If you're unfamiliar with using a trust for estate planning, read on to learn more about the difference between wills and living trusts and how to find out which one would best suit your situation.
When you create a will, you have the chance to specify how you want your assets to be distributed after you pass away. If you pass away without a will, your assets will be distributed according to state law instead. Once you pass away, the handling of your estate will go to probate court. The judge will task the executor you've named in your will with the job of paying off all of your debts and distributing your assets in the manner that you've specified in your will. In addition, you can also name who should receive guardianship of your young children with a will.
One major advantage of wills is that they're very easy to create. You can even create one on your own, although it's a good idea to seek the help of an estate planning attorney to make sure the will is valid. Hiring an attorney to draft a simple will is quite inexpensive, and it will give you the peace of mind that your assets will be distributed according to your wishes.
When you create a living trust, you'll partner with a bank or another financial institution and place the assets you own (like cash and real estate) into the trust. For estate planning, you'll typically name yourself as both the trustee and beneficiary of the trust. The trustee manages the property in the trust and the beneficiary is the person who owns the assets or receives income from them. Even though the property is no longer yours (it's property of the trust now), you'll still be able to manage it and receive the benefits from it just like you still own it.
You have the ability to name another trustee and more beneficiaries that take effect after you pass away, which is how living trusts can be used for estate planning. Once you pass away, the management of your trust can be assigned to a close friend, family member, or professional trust manager. Your heirs can be named beneficiaries to your trust, allowing them to make use of the assets contained in the trust and the income they generate.
Trusts have more flexibility than wills because you're allowed to limit asset disbursement. If you have young children or grandchildren and don't want them to receive your entire estate right away, you can pay them a portion of your estate monthly.
The downside of a living trust is that they're quite expensive to set up when compared to a will. You also have to transfer ownership of your property into the trust, which can make certain financial transactions troublesome. Selling your home, for instance, becomes a more complex transaction when the home is held in a trust rather than in your name.
Which One Is Right for You?
Due to the expense of setting up living trusts, they should usually only be considered if you need features that only a trust can provide. If you expect your heirs to be contentious and challenge your will in probate court, a trust allows you to bypass that process. If you need to limit the amount of funds available to beneficiaries, only a trust will be able to do that. There are also tax advantages of having a living trust, but they typically only apply to people with an extremely large net worth. For most, a will alone suffices for correctly dividing up your estate after you pass away.
In some cases, you may need both. A trust doesn't allow you to name a guardian for your children, so you'll likely need a will if you have children who are still minors. If you own property that isn't in your trust, you can specify that this property should become part of your trust after you pass away. Keep in mind that a will can't override your trust—you can only divide your own property among your heirs in a will, and the property in the trust is owned by the trust itself.
If you think that you may need a trust, it's best to contact an estate planning attorney to set one up. Trusts are much more complicated than wills, and you'll need the aid of an experienced attorney to help you form a living trust and decide what property to put in it.Share
28 December 2020