Getting started on drafting an estate plan may seem daunting, but its importance can’t be overstated. A well-designed estate plan ensures your assets and property transfer as you want them to and it greatly reduces the time and stress your family must endure if they’re left to administer your estate without one. Just ask anyone who’s been through the ordeal. Your estate plan can also ensure you leave an enduring legacy on your family for generations to come.
You’re probably already familiar with the fact that both a will and a trust are appropriate vehicles for transferring property. You’re probably also aware that a will can be significantly less expensive to draft than it is to establish and fund a trust, so you might be wondering when it makes sense to go with the trust option.
Read on as we compare and contrast both of these estate planning documents and explain how having one or the other – or even both – can help you achieve your goals.
When Does It Make Sense to Have a Will?
If you haven’t done any estate planning, the first thing you should do is get a will drafted because it always makes sense to have one. This legally enforceable document allows you to determine all your postmortem affairs, from property distribution to guardianship matters, charitable giving, stating funeral wishes, and more.
The reason you should always have a valid will is that it can protect your estate against intestacy. Intestacy is a situation in which a deceased person failed to have any kind of estate plan, particularly a will, before they died. Intestacy can make probate a longer, costlier and more stressful experience for your loved ones, cutting into the inheritances you may have intended to leave behind and leaving a harrowing process as your family’s last experience with you.
When there is no will, whatever property is left over in your estate will be divided according to your state’s laws, which favor your spouse and children before any other friends or relatives. This might sound fine for most people, but it can be a problem for blended families or those with unique dynamics.
Unfortunately, that’s not all. If you have minor children, the court will consider your family members as potential guardians, but they may not end up in the care of the relative who you preferred. Even worse, your children could end up in the care of someone you or they don’t even know. The same may be true for your pets.
Estates Backed Only by Wills Go through Probate
It’s important to consider that even if you do die with a will, your estate will go through probate. This is the legal process of validating your will and administering your estate under the authority of the local courts. Although probate in the case of intestacy may be particularly long and costly, probate under a valid will can still be long and costly – especially if legal disputes arise among family members, friends, or other parties named in your will.
A Trust Can Help You Avoid Probate!
It’s a good idea to establish a trust if you wish to avoid probate. In fact, that’s the main reason most people do it.
This is because the person who creates a trust (the grantor) funds cash, bank accounts, real estate, vehicles, and other property from their estate into the trust. If a trust is properly funded in this way, the grantor will pass away with nothing left in their estate, which means there’s nothing to probate.
Importantly, the grantor must assign a trustee and successor trustee to manage the property held by the trust. They must also name beneficiaries to the trust, who are to receive property when the grantor dies according to the grantor’s wishes as stated in the trust document.
It’s important to note here that of the many kinds of trusts that fulfill various purposes, only one type is formed after death – a testamentary trust. A will may include a provision that creates a testamentary trust to manage the estate’s property, often to reduce estate tax liabilities. But because a testamentary trust is only formed after the grantor’s death, it won’t permit the estate to bypass the probate process.
Revocable & Irrevocable Trusts
There are two main categories of trusts: revocable and irrevocable:
- Revocable trusts are those where once established, the grantor can alter the terms of the trust. Many people form revocable living trusts, which allow them to benefit from property and its income held in the trust during their lifetime, while avoiding probate once they pass on. Because the property in a revocable trust is still under the grantor’s control, the government treats it as the grantor’s property during their life for tax purposes.
- By contrast, irrevocable trusts can’t be altered once created, which means a grantor relinquishes all ownership of property they fund into one of these trusts. This, however, has important consequences that enable asset protection, Medicaid planning, and avoiding federal estate taxation. Grantors can still receive benefits from irrevocable trusts, but only if they are not also the trustee.
Don’t Throw Away Your Will Just Yet!
You don’t have to choose between a will and a trust, and in fact, you shouldn’t! Both are important estate planning documents that can help you preserve your family’s assets while also keeping your family together.
A trust is a good idea for avoiding costly probate proceedings, but it doesn’t address issues that a will can, such as guardianship of minor children. Also, a trust is unlikely to cover everything you own at the time of your death. If property slips through the cracks, and you don’t have a valid will left behind, that property will be treated as intestate property during probate.
The key takeaway here is that you should always have a will, but especially as your wealth grows, it probably makes sense to also establish a trust, and make sure to keep both updated!
Do You Need Legal Assistance?
If you’re thinking about estate planning and need help with a will and/or a trust, we at Norton Health Law are here to assist you. We provide clients with professional and personalized service, taking into account their specific situations in all the advice and services we offer.
You can learn more about what we can do for you by scheduling a consultation. Get in touch with us by submitting an online contact form or by calling (434) 216-4020.