You can’t take them with you when you go, so what do you want to happen to your belongings when you die? The question may seem macabre, but there’s only one person who knows the answer, and that person’s you. The first step towards making a decision is knowing your options, two of the most common options being “Will vs Trust.” You may have heard about these popular estate planning choices, but what’s the difference? Is there a way to avoid the Probate process? And which one’s right for your lifestyle and family? That’s what we’re here to help you decide.
The Importance of Estate Planning
The word “death” seems so final and bleak that it’s hard to skip past thinking about your inevitable demise and onto what on earth is going to happen to all your stuff. In short: You should hop on the Estate Planning train and choo-choo yourself all the way to Successions station. Why? You’re doing it for your family and for all of those who will inherit your baseball cards, Beanie Babies and vintage pogo sticks.
What is a Will?
A Will is a legal document that goes into effect only after you die. It dictates how you want your assets to be distributed and to whom. When a Will is activated, it goes through your state’s probate process before it can be distributed to your legatees. This is why it’s important to set up a Will with an attorney you trust. He or she will guarantee that your belongings are distributed according to your desires. Your attorney will also answer all of the hard questions for your family.
For those with children, a Will is especially necessary, because it is often the choice of those who want to appoint a tutor to a young child. You, as the testator, will name an executor for your Will and he or she will assume responsibility for distributing your assets according to your directives.
What is a Trust?
The primary difference between a Will and a Trust is that a Trust goes into effect at the moment of its creation. A Trust is a fiduciary contract in which a settlor trusts a second party, known as the trustee, with the right to hold title to property or assets for the benefit of a beneficiary. It is best known for skipping the probate process and for planning for the possibility of your own incapacity. There are two types of trusts: Living and Irrevocable.
Living or Revocable Trust
- A living trust, also known as a revocable trust, can be changed at any time. This flexibility means that the owner can remove or change beneficiaries and modify clauses freely. It is more expensive than a Will and must be managed actively after its creation. However, it is extremely beneficial for those taking into consideration the possibility of an injury or illness, and who will be responsible for their assets if they are incapacitated. Because responsibility shifts from the original trustee to a successor, the probate process is easier and may be unnecessary.
While flexibility is one of the biggest boons of a living trust, it is also the biggest drawback. Because the owner has consistent control over his or her assets, they are not protected from external forces, such as creditors. These assets can be liquidated, if the owner is sued, and may be taxable once the owner passes away.
- An irrevocable trust is just that: Irrevocable. It cannot be modified after its inception. From the second the agreement is signed, the document is final. Why would someone agree to this? Taxes. While Living Trusts are taxable, an irrevocable trust removes the assets from your taxable estate.
It is important to contact an attorney you trust, so they can advise you based upon what they know about your situation.
What Happens if I Don’t Bother with Estate Planning?
Foregoing estate planning is your choice, but it does mean the distribution of your assets will go in accordance with your state’s inheritance law.
My question is always: Why not? For one brief, glittering moment, your word is (literally) law. It’s not often you have the opportunity to dictate exactly what you want and how you want it done. When it comes to estate planning, a Will or Trust dictates that your final wishes are obeyed, down to every word.
Is there are Right Way to Approach Estate Planning?
No. Everyone’s situation is different, and it can be difficult to get started. Releasing your material possessions is just part of celebrating your life on earth. Passing our cherished belongings on to the next generation, or the ones you love most, is our way of saying one last “You mean a lot to me.”
If you’re considering estate planning and need an extra nudge, call the Law Office of Edward J. McCloskey. We’ll get you where you need to be.