One of the most essential things in life is planning for the future, including who gets what when you are gone. That’s where wills and living trusts come into place. Both are legal documents that ensure one’s desires are put into practice, ensuring that loved ones are taken care of when a person can no longer do so personally.
Our comprehensive guide will walk you through everything you need to know about setting up a will and a living trust. We’ll look at each document, what it does, and how it works. Whether you’re just starting to think about estate planning or want to revisit and revise your existing arrangements, this article will give you the knowledge necessary to make informed decisions about your legacy.
What is a Will?
A will, also known as a last will, is a legally binding document expressing one’s intention regarding how one’s assets would be distributed after one’s demise. It forms the basis of estate planning and is crafted for several critical purposes.
Critical Components of a Will
- Beneficiaries: These people or organizations will receive your various properties. You can name who gets what: money, property, and personal things.
- Executor: This is the person you entrust to carry out the directions in your will. They will manage the estate, pay outstanding debts or tax obligations, and distribute your estate to the beneficiaries.
- Guardian for Minor Children: In case there are children under the age of 18 at the time of signing a will, one has the right to appoint a guardian responsible for their custody in case both parents are deceased.
- Special Bequests are specific items or a certain amount of money an individual wishes to leave to someone or other organizations.
- Residuary Estate: Everything that is left behind after specific bequests have been distributed. You can comment on how you would want this residue to be distributed.
Why is a Will Important?
Having a will is important for the following reasons:
- Control Over Asset Distribution: If you die intestate, meaning you do not have a will, all your assets will be distributed according to state law, which may not be the same as what you want.
- Reduced Chances of Family Conflicts: A valid will help avoid disputes among family members about who gets what from the deceased’s estate.
- Naming a Guardian for Minor Children: Ensures your children are cared for by someone you trust.
- Speed Up the Process of Probate: A well-drafted will reduces the length and pain of settling your estate.
- Supporting Causes You Care About: You can gift money or assets to charities or causes you care about.
What is a Living Trust?
A living trust is another estate planning tool that may supplement or replace a will. In this arrangement, you transfer ownership of your assets to a trust controlled by a trustee who manages the fund to benefit your beneficiaries.
Critical Components of a Living Trust
- Grantor: This is you, the person creating the trust.
- Trustee: The individual or institution responsible for managing the trust’s assets. You can act as the original trustee and nominate a successor trustee to handle the trusteeship after your death or incapacity.
- Beneficiaries: The individuals or organizations who will benefit from the trust.
- Trust Property: Real estate, bank accounts, investments, and personal property could be the properties you put into the trust.
- Trust Document: A legal document outlining the trust’s terms, including the assets’ maassetribution.
Types of Living Trusts
Living trusts are categorized mainly into two types:
- Revocable Living Trust: The grantor can amend or revoke this category at any point. While it has its merits regarding flexibility, it doesn’t protect from creditors or estate taxes.
- Irrevocable Living Trust: This one, once created, cannot be modified or even revoked in most cases. This kind of system has more protection against creditors and some advantageous tax implications, but all without flexibility.
Benefits of Living Trust
There are several benefits to a living trust:
- Probate Avoidance: The assets held in the trust are not subject to probate, which may save some time and money.
- Privacy: Wills are matters of public record; therefore, nobody knows what you leave to whom, which provides some privacy upon your death for your estate.
- Continuity: If you should become unable to handle matters yourself, your successor trustee can take over the reins and manage things without having to go to court through court-ordered conservatorships.
- Possible Tax Advantages: There are ways to minimize estate taxes, based first and foremost on an irrevocable trust.
- Flexibility: With a revocable trust, you still have full control during your lifetime.
Will vs. Living Trust: Which is Right for You?
Whether to use a will, a living trust, or both depends on your situation. Let’s compare the two and see which may be best for you.
Benefits of a Will
- Generally less costly and complicated to draft
- May provide for naming a guardian for minor children
- Maybe more accessible to change or update
Goes through probate, which can provide a clear cut-off for creditor claims
Advantages of a Living Trust
Does not go through probate, therefore may save time and money
It is private and generally is not a matter of public record
Provides management if you are incapacitated
Especially advantageous if you own property in more than one state
Things to Consider When Choosing
- Estate Size: Larger estates can benefit more from a living trust, as they save on taxes and also can avoid probate altogether.
- Privacy Concerns: If privacy concerns your estate, you may consider a trust.
- Complexity of Assets: If an intensive estate consists of a business or possibly even a business, then a trust offers more control.
- Age and Health: Younger, healthy individuals may want to start with a will and consider adding trust later in life.
- Cost: A trust is often more costly upfront than a will to establish.
Many people have both a will and trust and use the will as a “catch-all” for any assets not in the trust.
Steps to Create a Will
Making a will is less scary than the feeling among many people. Here’s a step-by-step guide to walk you through it:
- Take an Inventory of Your Assets: List your properties, investments, and other valuable possessions.
- Choose Beneficiaries: Among family and friends, identify who you would like to have the inheritances from your assets.
- Choose an Executor of Your Will: Choose someone reliable who can carry out the terms in your will.
- Name a Guardian for Minor Children: Whenever applying, who shall take care for
- Be Specific About Asset Distribution: To avoid confusion or disputes, you want to clarify who gets what.
- Consider Including a Residuary Clause: This covers whatever you might have forgotten or could even acquire after writing the will.
- Write the Will: You can use an online template or software or consult with an attorney.
- Executing the Will: Most states require you to sign the will before two witnesses who are not beneficiaries.
- Store It Safely: File your will in a safe place and let your executor know where it is.
- Review and Update Regularly: Life is full of changes, so review your will occasionally and update where necessary.
Steps to Create a Living Trust
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- Choose ..pe of Trust: It can be a revocable or irrevocable trust; whichever you need.
- Choose Your Trustees: You’ll want to be a trustee, but you can also name yourself assuccessor trustee.
- Name Beneficiaries: Determine who should benefit from the trust.
- Name Your Assets: Decide on the assets the assets yourust.
- Create Trust Document: Write out the agreement of the trust, including how the assets are to be handled and distributed.
- Signing and Notarizing: You would sign the document before a notary public.
- Transfer Assets to the Trust: This is actually known as “funding” the trust. It describes changing the ownership of your assets from your name to that of the trust.
- Review and Update: Like a will, your trust needs periodic review and updating.
Common Mistakes to Avoid
When you draft a will or living trust, be aware of the following common mistakes:
- Procrastination: Never delay estate planning; it’s never too early to begin.
- Not Updating the Documents: Life changes, and so should your estate plan. Review it from time to time.
- Unclear Language: Be specific to avoid confusion or any potential legal disputes.
- Forgetting Digital Assets: Include provisions in regard to your digital assets, like online accounts or cryptocurrencies.
- **Not Considering Tax Implications: The larger the estate is likely to be, the more careful tax planning is required.
- Not Funding a Trust: A trust is only effective for adequately transferring assets into it.
- Not Telling Anyone: Be sure your executor or successor trustee has been apprised about where something is.
- Doing Too Much Yourself: Although simple estates can sometimes be handled by yourself, more complex situations often benefit from advice.
Although you can do a will yourself or a living trust yourself, there are some excellent reasons to see an attorney:
- State Laws Vary: The law of estates is different in each state. Generally speaking, an attorney will prepare documents that comply with local regulations.
- Blended or Dysfunctional Families: If you have children or parents from a previous marriage or relationship, or if you cannot get along with your relatives, or if one of your beneficiaries has a disability, you may need special planning.
- Large or Complex Estates: Professional advice can be beneficial if you have substantial assets or a complex financial situation.
- Business Ownership: If you have business ownership, you will want to attend to succession planning.
- Tax Planning: An attorney can help you structure your estate to minimize tax burdens.
- Avoiding Mistakes: A professional will help you avoid mistakes in the document preparation that may invalidate your will or trust or result in legal challenges in the future.
Updating Your Estate Plan
Of course, preparing your will or living trust is just the beginning. You need to update your documents regularly to reflect changing circumstances. Following are some examples of life events that could affect your estate plan:
- Marriage or divorce
- Birth or adoption of a child
- Death of a beneficiary or executor/trustee
- Significant change in your financial situation
- Purchase or sale of major assets
- Changes in tax laws
Out-of-state relocation
Also, attempt to review your estate plan once every 3-5 years, even if none of the above-mentioned life-changing events occur.
Conclusion
Writing a will and living trust are the most crucial steps towards ensuring that your desires are implemented and that your family is taken care of when you are no longer around. Even though, at first glance, it may appear to be mind-boggling, breaking it into smaller, workable steps can make it less daunting.
The first thing to remember is that estate planning is not an event; it’s a process. As your life changes, your plan changes with it. Whether you use a will, a living trust, or both, the important thing is that you have a plan.
Paying attention to creating and maintaining your estate plan is a great gift you can give your loved ones: clarity and lessened stress that your last wishes will be granted.
While this guide may serve as a good primer on some basic wills and living trusts, nobody’s situation is ever the same. It is always best to consult with a qualified estate planning attorney if you have a particularly complex estate or special legal questions. They will be in the best position to provide advice tailored to your needs so that your estate plan reflects your wishes and serves your beneficiaries the best.
Take the first step today. Your future self and loved ones will be grateful to you for it.
