In case of big life changes such as births, marriages, divorces, or moving to another…
In estate planning, wills and trusts each have specific purposes and unique advantages. Each state has specific laws and regulations governing these legal documents. You can have both a will and a trust; however, the information in each should compliment the other. As a standalone, it is not accurate to say one is better than the other. The better choice for you, or a blend of both documents, depends on your assets and life circumstances. Begin by assessing your situation, goals, and needs, and understanding what wills and trusts do to guide your decision making. Then, along with an attorney, you will be able to identify the solution that best suits and protects your family.
At its most basic level, a will allows you to appoint an executor for your estate, name guardians for your minor children and caretakers for your pets, designate where your assets go, and specify final wishes and arrangements. A will is only enacted upon your death. It has some limitations regarding the distribution of assets, and wills are also subject to a probate process (which occurs in court and is overseen by a judge) and, as such, are part of public records.
Types of Wills for Your Estate Plan
The last will and testament, commonly known as Will, designates a person’s final wishes about bank accounts, real estate, personal property, and who should inherit these items. A personal will outlines how to distribute possessions, whether to another person, a group, or donate them to charity. It also deems responsibility to others for custody of dependents and management of accounts and other interests. Accounts can include digital assets with a tangible or monetary value associated with it, such as funds in a PayPal account.
A pour-over will ensures an individual’s remaining assets will automatically transfer to a previously established trust upon their death. This type of will always accompanies a trust.
A living will in conjunction with advance directive (like Health Care proxy in New York or Durable Power of Attorney for Healthcare in New Jersey, which name a health care agent) specifies the type of medical care that an individual prefers if they cannot communicate their wishes.
A joint will, or a mutual will is meant for a married couple to ensure that their property is disposed of in an identical manner. A mirror will is two separate but identical wills, which may or may not also be mutual wills. Joint wills are largely uncommon in the modern times.
A holographic or handwritten will is valid in about half of the states and must meet the specific state’s requirements. Authentication of this will type for acceptance to the probate process also varies by state. There is always the possibility that a court will not accept a holographic will. Even if you have limited assets, your best strategy is to have your will professionally documented by an attorney. A video of your final wishes does not create a valid will.
Trusts are somewhat more complicated than wills, and the many different trust types can greatly benefit your estate and beneficiaries. Generally, a trust provides for the distribution and management of your assets during your lifetime and after death. Trusts can apply to any asset you hold inside the trust and offer more control over when and how your assets are distributed. There are many different trust forms and types, far more than wills.
However, the creation of a trust is only the beginning of the process. You must fund your trust by legally transferring assets into it, making the trust the owner of those assets. This process makes creating a trust a bit more complicated to set up; however, a trust is often enacted to minimize or completely avoid probate, thus keeping personal records private. Avoiding probate is a huge advantage for some people and often justifies the additional complex legal work of setting up a trust. There are nearly as many types of trusts as issues to address in your estate planning, and each offers different protections. However, trusts generally fall into three basic categories.
Basic Trust Types For an Estate Plan
A revocable living trust is, by far, the most commonly implemented trust type. The person who creates and funds the trust is known as the grantor and will typically act as the directing trustee during their lifetime. The grantor may undo the trust, change its terms, and move property and assets in and out of the trust’s ownership as they deem desirable. Revocable living trusts are designed to switch to an irrevocable trust upon the death of the grantor.
An irrevocable living trust is legally binding on its date of designation and allows very few provisions for change. The trust grantor funds the irrevocable living trust with property and assets, and the trust property is then under the care and control of the individual the grantor names as trustee. The grantor cannot change their mind and “undo” the trust. There are unique tax implications and other benefits to an irrevocable trust, including protecting a person’s home and savings from the high costs of long-term care. These benefits can make relinquishing control worthwhile.
A testamentary trust is a provision within a will, appointing a trustee to manage the deceased’s assets. This trust is often used when the beneficiaries are minor children or someone who is receiving public benefits. This trust type is also used to reduce estate tax liabilities and ensure professional asset management. A testamentary trust is not a living trust. It only exists upon the death of the testator (the writer of the will). The executor of the deceased’s estate would follow the terms of the trust (called administering the trust) as part of the probate process.
Things to put into a trust include but are not limited to:
· Stocks, bonds, mutual funds
· Money market accounts
· Brokerage accounts
· Patents, copyrights, and royalty contracts
· House and other real estate
· Business interests and notes payable to you
· Jewelry and precious metals
· Works of art or other valuable collections
Assets that are not affected by trusts include but are not limited to:
· Life insurance proceeds (unless there is a specific need for transferring the life insurance ownership into an Irrevocable Life insurance Trust, or ILIT, or a regular irrevocable trust)
· Payable on death bank accounts
· Retirement accounts
· Jointly owned assets (unless transferring the entire ownership over the asset to an irrevocable trust is warranted, like when married spouses jointly owning a home would like to qualify for Medicaid)
· Real estate subject to transfer-on-death deed (again, similar scenario to the one with jointly held assets)
The many benefits that proper estate planning with wills and trusts can provide to your family are worth some thoughtful contemplation, legal counsel, and properly drafted documents. We would be happy to meet with you and discuss which options are best for your particular situation. If you’d like to discuss ways we can help, please contact our office at (212) 920-6371.