Everyone wants to protect their families, even after they pass from this world. That’s the purpose of estate plans. But how do you know whether all of the elements of a good plan are in place?
The first step is understanding the difference between a will and a trust:
- A will lays out your wishes for what happens to your property after you die. Wills name a legal representative to carry out your wishes upon your death. You can change your will at any time.
- Revocable trusts (or, inter vivos trusts) are created during a person’s lifetime that indicates where property should be distributed—whether during your lifetime or after your death. The legal title to the property is held by the person or entity to whom the property is passed. Still, you retain ownership on the property. Thus, you can change the terms of a revocable trust at any time. For tax purposes, you are considered the owner of the property because you control what happens to it. For example, you could change the a trust beneficiary from a family member to a charitable institution, if you wish.
- Irrevocable trusts are similar to revocable trusts. They are created within a person’s lifetime and indicate where property should be distributed during your lifetime or after your death. However, once the property placed in the trust and ownership transfers to your beneficiary, you no longer own that property and cannot make any changes to the trust. For tax purposes, irrevocable trusts remove the value of property from your estate. Therefore, trusts can’t be taxed when you die. The trust property is also outside the reach of creditors.
- Additionally, wills must pass through the probate process. Therefore, they become part of the public record. However, trusts do not pass through probate so their terms can remain private.
Protecting your family and other beneficiaries:
Wills and trusts each have advantages and disadvantages. However, you can utilize both to better protect your family and other beneficiaries. Together, they provide fuller protection. For example, trusts do not allow you to name a guardian for children, but wills do. Trusts may also be used to plan for unforeseen events, such as disability, or to do important tax planning. On the other hand, your will can spell out wishes for your funeral or specify who you want to receive your watch collection, but trusts cannot.
Furthermore, there are many types of trusts. “Revocable” and “irrevocable” trusts are only the tip of the iceberg. You may want to put some property in a revocable trust and other property in an irrevocable trust, depending on your goals.
Another aspect of comprehensive planning contains end-of-life issues, which are not fully addressed in this article. Consider whether you want to put in place a do-not-resuscitate order or whether you want extreme life-saving measures to be taken. Select a specific person or people to make these decisions for you in the event you can’t make them for yourself. To address these issues, you may want to include a “living will” in your estate plan.
Estate planning is complicated and ever-changing. The best advice? Consult your accountant, attorney, financial planner or insurance representative to get the planning advice you need for your specific situation. Contact us today if you’d like us to point you in the right direction.
Remember: state law often governs these documents. Thus, it is important to get advice from an expert who understands the laws in your area.
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