What are wills and trusts?
A will, also commonly referred to as “last will and testament”, is a legal document that expresses your wishes regarding the distribution of your assets when you pass away. A will is essential for estate planning.
When administering a deceased person’s will, it goes through a “probate,” the process by which your assets are distributed. During the probate process, the will undergoes scrutiny until it’s proven valid. An unintended person may get your assets if the will is improperly structured. An experienced estate lawyer can ensure that your assets go to whom you want when drafting a will.
A trust, on the other hand, is a fiduciary agreement wherein one party, known as a trustor, allows another party, the trustee, to hold assets on behalf of a beneficiary. When you die, the people you designate as beneficiaries will get the assets. Trusts don’t go through probate. Trusts allow you to arrange how and when your assets will be distributed to your surviving beneficiaries.
Wills and trusts work together. A trust ensures your assets will be handled how you want them to. A will covers what isn’t in your trust, and can even include instructions to place your assets in a trust.
Why do I need a will?
The only people who don’t need a will are those with nothing to pass on. Even if you have little to give after death, a will is still beneficial. Small estates may only need a simple will for an estate plan.
If you want specific people to inherit specific belongings, definitely consider a will. Disagreements about who gets what can delay probate, thus affecting the time when your heirs receive their inheritance. If you create a will, this gives legal documentation of your wishes for your assets, avoiding disagreements.
Here are 5 advantages of wills:
- A will is a cheap way to pass your assets.
- A will can cover everything in your estate.
- A will could make probate cheaper and faster for your loved ones.
- A will lets you name a person for guardianship of your underage children.
- If the beneficiaries of a life insurance policy die before you, a will helps distribute the proceeds.
Do I Need a Trust?
Trusts are often seen as something only the obscenely rich have, but the truth is all people could benefit from creating a trust. A trust lets you better control how you pass your assets. In the trust agreement, you can add instructions for how and when to pass on your assets to an heir. A trust is its legal entity, as such probate will not affect the trust’s assets, and the rules for distributing assets are set.
A trust works very well together with a will. You could opt for only one, but it is certainly better to have both. A usual option combines a pour-over will with a trust.
Under a pour-over will, you can direct that your assets be moved to a trust upon your death, from which you can distribute them as you wish. Some people opt for a testamentary trust — a trust created from instructions from a will. Some create living trusts while alive with instructions from the will to transfer on death.
Pros of a trust
The main pro of a trust is that you can avoid probate. This has multiple advantages.
- Avoiding probate maintains your privacy since probated wills become a public record.
- Probate could be tedious and expensive since it allows people to contest your will.
- Probate court could award your assets to someone who’s not the intended successor.
What are irrevocable trusts?
There are different types of trusts. One is an irrevocable trust wherein the grantor cannot change anything after creation. The grantor is the person who creates the trust. They lose possession of the assets in the trust, but there are benefits to this. Transferring assets into Irrevocable trusts decrease the value of your estate, which may help you qualify for income-restricted programs. An irrevocable trust can help you avoid estate tax.
A properly constructed irrevocable trust provides asset protection from creditors. Those who try to sue you won’t be able to take your assets as payment. A good estate planning lawyer should ensure this when setting up a trust.
Cons of a trust
The major disadvantage of a trust is the price, as it is costly to establish and maintain. Establishing the trust with an estate planning attorney will already set you back. With a revocable living trust, the trustee you appoint or you yourself would have to maintain the trust. This could spell more work and more expenses, such as if the trust earns income and needs a tax return.
Trusts can avoid probate and allow you to avoid legal challenges, but they are not immune. An example is if you list two people to receive the same asset which happens with accounts that are payable on death, for example, IRA or life insurance death benefits.
While you can use a trust for a lot of your assets, ensure that the remainder is covered in the will.
Our Tacoma Estate planning attorneys will ensure that everything’s clear when setting up your estate plan. For any concerns with your trust and estates, elder law, or estate law, call Jones Legacy Law now for a free legal consultation.