Wills And Trusts
Let’s face the facts here – nobody likes probate. The further we remain from the lengthy and long-drawn (and not to mention, costly) process, the better we feel about ourselves and our precious assets.
One of the best ways for people to avoid probate is to draft a living trust along with (or even without) your will. A living trust ensures speedy delivery of assets and helps you avoid probate, helping your family avoid unnecessary inconveniences after your passing.
That being said, all is not advantageous when it comes to making a living trust. Depending on several factors including (but not limited to) your age, marital status, and financial status, a living trust could be useful or not. For most people, however, the answer is somewhere in the middle.
Here are the factors that will help you determine whether or not living trusts really are the best for you – probate and otherwise.
For those with a medium to large amount of assets and in their advance stages of life, making a living trust is justified. Not only is there a lot of money at stake, there is not enough time, and it really does not make sense to put all of that through probate. Additionally, having a living trust would help in making sure that there is someone to make crucial decision if you are incapacitated, but not dead.
However, if you are relatively younger – at least under-50 – earn a mid-level income, and have few assets, making a living trust would make very little sense. While you may not be very rich, you are sound both in terms of health and finances, and it is best to keep that stable and not worry about costs surrounding probate – which is decades away anyway. All you need is a serviceable will to transfer your property to your beneficiaries.
While living trusts are largely convenient, they come with a steep downside i.e. the time and cost involved establishing as well as maintaining the trust. A trust drafted by a lawyer would cost no less than $1,000, and possibly more according to the nature of your trust and the amount of maintenance work you will have to do. Furthermore, even if you have a living trust, you will still have to make at least a simple will, that will act as a back-up legal tool.
If you are rich and have a lot of assets that need to be in one place, making a living trust makes sense. Otherwise, it would simply be a time and money-intensive way to be hard on what assets you do have. The better thing to do here would be to wait out a few years and check if making a living trust really is a means that justifies both the beginning and the ends.
Your marital status largely determines how you may leave your estate to your loved ones after you have passed away. Chances are, you would like to leave the major portion of your property to each other in case you die. Going by this assumption, if you are young, avoiding probate is not a worry. Additionally, if you are among the several couples who own their assets jointly, those assets would not have to go through probate.
Another reason why you might not need a living trust is because most states allow their surviving spouses to make use of expedited probate procedures to avoid the time and cost that comes with the standard probate.
No matter how small (or big) the size of your financial assets may be, it is a must to have a proper legal document that will allocate said assets at the time of your death – and in accordance to your wishes.
Most people solve this problem by making a will. And why wouldn’t they – it is legal and offers a good way to distribute your assets after you die. That being said, there are other documents that can be used in place of a will.
One such document is a living trust. It works a lot like a will but has some slight differences that offers some solid benefits. Ironically for something that is essentially more dynamic than a will, living trust are used quite rarely. In fact, only as little as 20% Americans use living trusts.
For the rest who don’t here are 3 compelling reasons why a living trust works better than a will. But first, let’s know what the difference is between these two documents.
Living trust vs. will
Often called an “inter vivos” (meaning revocable) trust, a living trust is a legal document through which you can have your assets placed in trust. Not only will this help you after you die, it will also help you during your lifetime. Once you die, your assets will be transferred by a “successor trustee” i.e. a chosen representative to your desired beneficiaries.
Alternatively, a will allows you to make a plan of how your assets should be distributed after you die. An executor, who you will name in the will, will oversee the process for distribution of assets, but that can and does happen only when you die.
Benefits of a living trust
You can avoid probate with a living trust:
The key benefit that a living trust offers is avoiding probate. A will – even when it is valid goes through the lengthy process of probate, which consumes a lot of time and energy on top of the stress of losing a member of their family. A living trust, however, has no such strings attached – and therefore facilitates quicker distribution of assets – weeks, as opposed to months (or even years with a will).
A living trust is more cost-effective:
While this largely depends on your overall financial situation, a living trust usually costs way less than a will in the long run. A living trust does cost more initially, since you have to make actual transfer of assets (like stocks, bank and bond accounts, certificates etc.) via a separate set of paperwork, in addition to writing the living trust. It is, however, more cost-effective when it comes into action as you need not have the living trust go through the lengthy probate process upon your death. They will also hold up better in the event someone contests it after your death.
A living trust helps provides a better level of privacy:
This is another major benefit that comes with drafting a living trust. Contrary to a will, a living trust is not a public document, and any assets that are distributed will be done in private. This avoids any and all transactions to be put on public record.
Additionally, a living trust will easily help you handle any property of yours that may lie out-of-state. Even with a will, such property would have to go via the probate process in both the property’s state and in yours, making it a very inconvenient and long-drawn process.
When it comes to handling wills and estate planning, terms can get confusing. Living wills, wills, and trusts are different, yet overlap, which can make it confusing for an ordinary man to understand what they specifically are. Such kind of lack of awareness gives rise to confusion which leads to the development of myths that may completely interfere with your plans to secure your future.
No matter what your status is in life, having a solid estate plan is place is of utmost importance. Here are some myths that you must avoid when you are making your own plans:
Myth #1: A will and a living will are one and the same
One of the biggest confusions surrounding estate planning and wills and estate planning is that a testament, a last will, and a living will are one and the same. While they sound similar and fulfill the larger goal of securing financial matter around the time of your death, they each have different roles to fulfill. While a testament and a last will deal with financial actions in the aftermath of your death, and only become active once you die, living wills work as an advance directive – helping you make the choice of how your financial matters will be handled during your lifetime – and especially its later stages. They remain dormant unless you become incapacitated and unable to make or express choices even when you are alive.
Myth #2: It is important to plan a reading for a will
Thanks to the popularity of TV shows, most know about the compelling part that is the reading of a will, when the family (and maybe other possible inheritors) sit together for the lawyer to read out the will. It is however just that – fiction.
While the reading of the will makes for a very compelling and dramatic scene it has absolutely no relationship with actual laws. While your family does get to read your will after your death, it happens from a copy that they receive (in private) rather than a mass gathering an announcement.
When you die, someone (possibly your spouse or child) will have to bring your will to a probate court. Upon submission to probate court, the will would become the part of a new probate case and will be scrutinized by said court of law. Only after the court successfully determines the legal validity of the will, its terms will be enforced. If the courts deems the will invalid, the state will take over the matter.
Myth #3: A will is exclusively meant for the old, sick and/or wealthy
One of the greatest mental blocks when it comes to making wills is the fact that many people believe it is a directly reflection of human mortality and is therefore only suited for those who are close to death, and/or have a considerably large amount of wealth on their hands. Therefore, if you are not old, sick or wealthy, a will is not necessary.
Some of this is true – wills do reflect the fact that no one lives forever, and that planning ahead of time is a necessity, and people who belong to the aforementioned groups have a greater need for a will, those far away from said groups (namely young and healthy adults, and people with limited wealth) also require a will as well as an estate plan.
The truth is that despite all odds, emergencies can strike anyone at any time. Such untimely occurrences are indeed unfortunate, but the lack of proper legal devices further complicates things in the form of destructive family conflicts and haphazard actions. So even if you are someone who is not old, wealthy and/or sick, or even someone with a family, you must make sure to have a will.
Myth #4: Having a will is enough
A will is an essential document important for the purpose of estate planning (not to mention the perfect first step in the right direction), it is not enough on its own. This is primarily due to the fact that a will is a legal device that is meant to get into effect only when you die and has practically no purpose to serve when you are alive. For instance, if you are sick and require somebody to help manage your finances and health, a will would be of no use.
This is where other estate planning devices (such as estate plans and living wills) come in – each serve a specific purpose, and together, they address all aspects of your finances in all stages of your life. Do bear in mind that in order to give yourself and your family the best of benefits and protections, you must first have all the estate planning tools at hand.
Myth #5: There’s no need for a will when you can simply tell people what you want
One of the biggest myths surrounding wills is that of making an “oral will.” Often the product of fictious TV shows, many do believe that simply saying one’s wishes aloud on one’s deathbed is enough – and that a document (and all the legal proceedings that come with it) is not necessary.
This could not be farther than the truth, however. Making an oral will has nothing to do with with how modern estate planning laws function, and therefore have no legal bearing on how your property would be distributed once you die.
While some states (say, twenty of them) do allow people to make oral wills (a process called nuncupative wills), it comes with quite a few limitations. For instance, the state of Washington allows residents to create oral wills, it can only happen under specific criteria:
- The total value of the personal property be less than $1,000
- There should be at least two competent witnesses on the scene
- You must be in the last stages of your illness
- Someone must be present to write down the terms of the oral will and submit it to the probate court within 6 months of your death
- Your spouse and/or children should be notified of the oral will in order for them to be able to contest the terms.
Therefore, oral wills – even in the states where they are allowed, are no match for a drafted last will and testament.
Myth #6: Having an estate plan is enough
Having an estate plan in place is one of the best things you can do – it is a great way to make choices that will help secure the financial situation of both yourself and your family and help avoid conflict and legal hassles later.
That being said, it is definitely not enough. Estate plans need regular review and if applicable, amendments and updates in order to make sure that the choices you make have the same effect years and decades down the line.
The most common reasons why changes in estate plans are often needed are:
- Circumstances: The key purpose of an estate plan is to have a solution that fits the needs and expectations in your personal circumstances. And circumstances often do change in life – marriage, divorce, illness, financial upheavals, and family additions are some of the many reasons why circumstances can change drastically. In such cases, you must make sure that said changes are reflected on the way you plan your estate.
- Choices: Sometimes even without external circumstances, you may want or need to change your estate plan to better suit your current mindset and view on life. For instance, if you have taken a liking to philanthropic activities, you may want to have some of your wealth go to charity, and therefore will need to amend your estate plan to reflect that.
- The Law: Legal changes have considerable effects on the ramifications and sometimes even the validity of an estate plan. Legal changes in estate planning are known to happen every few years, and it is important to know if and/or how the legal changes affect you and your estate plan.
Myth #7: Having a will means a probate is not needed
One of the most dreaded parts of the legal procedure is a probate – and many who have a will in place believe that probate is not needed. Although it is no longer as time and expense intensive as it used to be, probate still is a considerably lengthy process that can last for at least a few months and cost quite a bit. And while having an estate plan in place does help in avoiding (or at least minimizing) probate, a last will or testament has no such effect.
Submission of a will to a probate court is mandatory and is a process that is bound to happen – even if you die. It is therefore better that you complete the long-drawn, but necessary process long before such an eventuality. Keep in mind that the probate is the only way for the court to determine the legal validity of your will, and for you to make sure that your choices are indeed enforced.
Myth #8: You have to leave an inheritance for your children or else they will challenge the will
Usually, there is a social obligation for parents to leave behind their property for their children – it is appropriate and expected. However, there is no legal obligation for you to leave an inheritance. There could be exceptional circumstances when you may not want your children to inherit your property.
Legally, you are free to leave your inheritance to whomever you want to. Your children can challenge the will if they don’t find themselves as an inheritor of your wealth, but it is a process that is far more complicated than it looks. For starters, they will have to meet some basic legal requirements to even be eligible to challenge a bill – this includes having a “standing,” (as in if they stand to inherit from the current as a successor), and have “grounds” for the will’s invalidity (as in, a solid and legally sound and recognized reason for why they believe that the will is not valid). Simply being unhappy with the will, however, is no ground on which they can challenge it.
Myth #9: In the absence of an estate plan or will, your property will go to the government
While It is correct that the government can and does end up being the inheritor of your property in certain circumstances (which, specifically, is a process known as escheat), said circumstances are very few and far between. In every state, the state government has laws in places that determine who is to inherit the property in the event of the lack of a will or any other kind of directive.
If you die without leaving a will, your property would be subject to laws of intestate succession, which, in simple terms means that the property will be inherited by the closest surviving relative. For instance, if you die without a surviving spouse but have children, the property would be equally divided and given to them. If you have no immediate family of your own, but have a niece or a nephew, the property would be inherited by her/him.
Escheat will only happen when the government cannot find any relative who can inherit your property in the absence of a will.
A living trust represents one’s plans for the future – the better the plans, the more structured one’s life is. That said, sometimes, even the best laid plans can be rendered useless by unexpected changes that happen in life. Changes like this can get you thinking about wanting to change your own plans – and in this particular context – your living trust.
Changing a living trust can be simple provided certain key steps are followed. Here is a guide on how you can go about that:
What type of trust do you have?
In order to understand how changing your living trust would work, you first need to understand the type of trust that you currently have. Trust are of two types – irrevocable and revocable. Irrevocable trusts are meant to be permanent, and therefore are very difficult to make changes to. A revocable trust, on the other hand, is flexible in nature, and can be easily changed or even deleted if necessary.
Why should you change your trust?
There are several reasons why you may need to change your living trust. Some of the most common reasons for this are adding and/or changing beneficiaries in the event of a birth of a grandchild, the death of an existing beneficiary, divorce, change in financial status, change in laws, moving to a state with different laws. Other reasons include a change in intention in how assets should be distributed (for example, if you decide that beneficiaries must reach an age before they inherit the assets), removing or adding a property to the trust, changing the trustee and/or the successor trustee, or making a change in the powers that would be vested in the trustee.
In the event that the sole reason you want a change in your living trust is to add property to the trust, all you need to do is transfer the ownership of that property into the trust by adding it to the trust’s schedule of assets. Given that trusts are set up in a way to readily accept new assets, making amendments will not be necessary.
Changing the living trust
The easiest method of changing a living trust is to fill out a trust amendment form. This is a legal instrument that helps you make changes to your living trust without compromising the integrity and active status of the original document. If the trust in question has been made jointly with your spouse, the agreement of both of you would be required to amend the trust.
Sections to fill out require basic information – the name of your trust, whether or not this is the first change to the trust, previous changes to the trust (if applicable), and a statement of whether the amendment overrides previous changes or will remain in effect.
When writing the change, do make sure state that you intend to make changes to the trust, refer to the relevant paragraph number in the original trust document, and then state how you will change the section. Once you are done, you must sign the living trust amendment in the presence of a notary, and then attach said amendment to the original trust document and its copies.
How to restate the trust
Besides using the amendment form, you can also make changes to the trust by making restatement. Essentially, it is total redo of the trust that allows the trust to remain active while the new document alter its provisions. Restating trusts can be particularly useful if the number of changes you are making are several in number.
Making the restatement involves filling out a trust restatement form, stating the date of the original document, restating provisions, and then incorporating the changes that you intend to make.
Any individual must make a will or a trust in order to make sure that his or her estates remain in safe hands and are best utilized by those near and dear to them. If you yourself have any loved one who has not created their will or trust yet, you must make an effort to help him or her get started. Depending on his personal requirements and/or the size of his estate, he may choose to create a will, a trust or even both.
Here’s how you can help your friend decide the estate-planning tools that are best for them.
Why opt for estate planning?
Estate planning refers to actively segregating assets and determining how they will be paid out upon your passing. Assets can include personal property as well as any investments or related accounts or capitol.
No matter what the size of their estate, your partner must create a well-drafted will (or trust, or both) to make sure that his assets get distributed to the people of his choosing. Without a valid will, the estate will be divided by the state according to local laws.
Creating a Will
A will is a legal document which contains the direction on how an individual’s assets will be distributed after their death. Your loved one is free to choose how he or she will divide his or her assets – i.e. whether it will be handed over to a single individual or divided among several, or even donated to an organization or charity.
By law, your loved will be required to appoint an executor, who will take on the task of distribution of assets according to the wishes of the deceased. This individual will be responsible for paying dues, filing taxes, and distributing assets. In case your loved one fails to appoint an executor, one will be appointed by the state.
Your loved one is also free to change or even revoke his or her will, provided he is not mentally incapacitated at the time.
Will go through probate, which is a legal process that determines the will’s validity sees to asset distribution – even when a valid will is absent.
Establishing a Trust
While a trust contains the details of how an individual’s assets will distributed upon his or her death (like a will), it enables the granter (i.e. the person creating the trust) to have someone of his manage his assets if he is alive but incapacitated.
Establishing a trust requires the granter to write a trust document and transfer the ownership of his property to the trust. The granter is also responsible for naming a trustee who will manage the trust.
The main point where is trust is different from is will is that a trust comes into effect while you are still living. You can choose to appoint yourself as the primary individual to manage your property on your own, and then designate a successor to manage transactions and distribution of assets once the granter dies or becomes incapacitated.
While irrevocable trusts cannot be amended, revocable ones can be amended at any time so long as the granter is able to do so.
If you want to assure the safety of your assets after your death and want your survivors to get a financial support system it, you must have a written legal document which mentions the directions to distributing your assets post-mortem. Which is where the fundamental question arises: What should you go with? A will, or a living trust? Most of the American population (around 80%) have wills, and a much smaller percentage have living trusts.
Often called as a “revocable” or an “inter vivos” trust, a living trust is a legal document which allows you to place your assets in a “trust.” This trust will first offer you benefits while you are alive and will be transferred to your designated beneficiaries after your death. The transfer itself will be done by a “successor trustee,” who will be a representative of your choosing.
A will, on the other hand, is a legal document that has the directions on how your wealth must be distributed after your demise. The process itself is carried out by an “executor” (who will be named in the will), who will be able to carry out his or her duties only after you die.
Who should you join? The 80% or the much lesser 20%? Here are three compelling reasons why you should opt for a living trust:
You won’t need Probate
This is arguably the best advantage of having a living trust. Having a valid will for your estate will subject it to go through probate i.e. a series of court proceedings whose purpose will be to distribute your assets according to your directions by the executor. A living trust, however, does not have any such requirement, and therefore can allow you to distribute your assets to your heirs much faster – weeks as opposed to months (or even years) in case of a will. The successor trustee will be responsible for paying your debts and distributing your assets according to your wishes.
A living trust may help save money
While this is true for the most part, how much you will save depends on your particular financial situation. Initially, drafting a living trust will cost more than a will, since the former is a more complex document. Further expense will be required in transferring your assets (like certificates, stocks, bank accounts, and bond accounts) to the trust, which will be done through separate paperwork – creating and funding a trust requires more than simply “writing it up.” The living trust, however, will save money during the time of its execution (especially after your death), as there will be no need for it to go through probate (which is a costly procedure that is carried out in case of wills).
A living trust offers privacy
If you prioritize privacy in matters of your estate and assets, this can be a crucial factor. While a will is (by law) a public record and has all of its transactions made public as well, a living trust is private, and has your estate distributed in private upon your death. A living trust also includes your out-of-state property (if you have any), and avoids it going through probate.
Practically everyone has heard of the terms “will” and “trust,” and knows the context in which they are used. However, most people assume that they are one and the same – which is far from truth. In reality, these two documents and their functions are very different. While they are both estate planning devices and are very useful, they serve different kinds of purposes, to the extent that they can be used in conjunction to make a wholesome estate plan.
To start with, let’s take a look at the basic definitions of the two documents – while a will is a document that consists of directions in which your wealth and/or assets should be distributed after your demise, a trust can be used to distribute them before death or during the period of death (or even afterwards – but that’s up to you). While the will becomes active after only after your death, the trust will come into effect the moment you create it. By law, a will requires the presence of a legal representative who will see to the implementation of your wishes after your death. A trust, on the other hand, requires no such thing. A trust is generally arranged between a person (or institution, like a law firm or a bank) – known as the “trustee,” and the person who stand to receive the property – called the “beneficiary.” Trusts generally have 2 types of beneficiaries – those who receive income from the trust when they are alive, and those who receive the leftover amount after the death of the first set of beneficiaries.
Another key difference between a will and a trust is the kind of property that they cover. While a will covers only that property which is in your name at the time of your death, it does not include any property that is held in a trust or even in a joint tenancy. On the flip side, a trust can only cover property which has been transferred to it; therefore, the property must be put in the name of the trust in order to be included in it.
By rule of law, a will is supposed to pass through probate, which means that it’s administration will be overseen by a court of law, which will make sure that the will remains valid and the all the directions on it are followed according to the wishes of the deceased wanted. A trust, on the other hand, passes outside probate, and therefore does not need the supervision of a court (or the extra time and money that goes along with it. It is also for this reason that a trust can stay private unlike a will, which will ultimately become a part of public record.
Deciding which is the best option for you can be tough, since each of them have their own advantages and disadvantages and their usefulness (or lack thereof) is dependent upon your unique situation. To get the best of yours and your survivors’ interest, you must make a proper consultation with your lawyer and financial advisor.