You have worked very hard during your lifetime and it is only natural that you would like to leave a legacy to your loved ones. It would be wise to find a way to retain some control over the assets. No one wants the IRS, creditors or even a divorce to prevent loved ones from enjoying the benefits of your legacy. Even if you are a person of modest means, you have an estate. Your estate consists of all your personal and real property, such as, retirement accounts, a home, jewelry, rare collections, etc. There are many strategies to ensure your property is distributed according to your wishes and in a timely fashion. The most basic methods to transfer a legacy are Wills and Living Trusts but, which is better for you?
So What Is a Will and How Does It Work?
A will is a document that directs the distribution of the property owned by an individual at the time of death. To be effective, a will must be executed according to your state's statutory requirements. Generally, it must be in writing, signed by a person of sound mind and by competent witnesses. It can be revoked or amended at any time during your life but, any change to the will requires that both you and your witnesses sign again. After your death, the executor you have chosen must petition the court to start a probate process. As part of the process, your property must be valued for estate taxes. The probate process can range from six months for a small uncontested will and can last for years if there are delays in the court proceedings. As with any court proceeding, probate becomes part of the public record and is available for anyone to see.
...And What Is a Living Trust and How Does It Work?
In a living trust, the grantor transfers the assets to the trust but can retain the power to manage or revoke the trust. The trust also allows the grantor to decide who will be the successor trustee and the beneficiaries of the trust after death. If you are serving as your own trustee, the trust instrument will provide for a successor upon your death or incapacity. Therefore, upon death the court does not need to intervene and no probate is required. A trust can also be beneficial if you are disabled by accident or illness; the successor trustee can manage the trust property without a lengthy court proceeding. Because court proceedings are not required, the expense, publicity, and inconvenience of court-supervised distribution of your estate can be avoided.
A properly written and funded trust will:
Trusts also can include provisions to care for family members with special needs. It may be in the best interest of beneficiaries with special needs to have limited access to their inherited property. With a standard will your property will be passed on to those heirs but a will alone does not allow you to exercise much control over their use of the property.
A trust can also be established in a way that minimizes estate taxes. If the value of your estate exceeds the current estate tax threshold, you may wish to consider setting up a trust with tax planning provisions. An attorney will be able to advise you depending on your specific situation.
So the Bottom Line is...
A will is easy to establish, it requires minimal time and money but may leave your loved ones with a heavy burden due to court proceedings. A trust is more sophisticated than a will and enables you to accomplish much more than a will but do not overlook the fact that it involves more upfront effort and expense. A trust, however, allows you to establish provisions for that allow you to feel peace of mind and know that although you are no longer with your loved ones, they will enjoy your legacy exactly the way you intended them to. When choosing between a will and trust, remember that one size does not fit all. What is right for one person may not be right for everyone. Consult your attorney; your estate plan should be prepared in a way that best meets the needs of you and your family.