Estate planning is a multistep process that when properly designed can help ensure the proper protection and distribution of your assets. The tool most used is the will. Below is a short description of what this document can do and its potential downsides. We will also explore trusts and how they can be used to further protect your assets and keep your estate plan on track.
A will is a legal document that outlines a person’s wishes for the distribution of their assets and management of their affairs after their death. It can set beneficiaries, appoint guardians for minor children, select an executor and specify how to handle debt, taxes, expenses, etc. A will can set up trust, charitable requests and even impose conditions on the distribution of the assets. Without a will, the distribution of assets will be determined by the state.
Some disadvantages of a will are that it does not save your family from the headaches and cost of probate. Probate can be a lengthy and expensive process. A will has limited control over non-probate assets such as life insurance policies and retirement accounts whose beneficiary designations supersede the will. There is also limited privacy as a will becomes public record once it goes through probate. The laws of your state determine the validity of your will and thus you may run into issues if you move to a different state, and your new state has different requirements. A will can also be disputed with claims of undue influence, diminished mental capacity or conflicting interpretations of the will.
A revocable living trust is a trust that you set up in your lifetime to hold assets for after you die. It’s very different from a will in that your trust not only plans for after you die, but also can outline intentions and provisions in the event you become mentally or physically unable to make your own decisions. It is called a living trust because you establish it while you’re alive, and it is revocable because you can change or revoke the trust at any time. Passing property through a trust avoids probate and their terms supersede the will.
It is important to weight the benefits and drawbacks of including a trust in your estate plan, especially when determining if the cost is worth it. There are many factors to consider so you should talk to your financial advisor to see if including a trust in your estate plan is a good option for you.