Making plans for the end of our lives often results in discomfort – which often results in procrastination, sometimes until it’s too late. Many of us spend time taking out life insurance and accidental death and dismemberment insurance without a second thought, but delay drafting and signing wills and/or trusts despite how critically important they can be. Often, this is because having a will or living trust drawn requires reviewing and discussing finances. If this is you, you are not alone. In fact, polls have shown that nearly half of all Americans think finances are more uncomfortable to discuss than their own eventual death.
How Important is it Really?
While making arrangements to have your assets properly disbursed following your passing may be unsettling at first, the truth is that taking steps to put these important legal documents in place can invite peace of mind and tranquility. Without a will or trust in place, your loved ones could be faced with a massive burden upon your passing.
Without a valid legal document outlining your wishes, your assets will be disbursed by a court of law that arrives at its decision by following well-established laws, regardless of who you want to inherit from you. Without a will or other legal document, like a prenup, the widow will get a significant percentage or all of the estate. The children will receive shares equal to each other. Not everyone wants an equal distribution among their children. For a variety of reasons, you might want one child to get a larger portion than the others or you might want another child to get nothing. Without a valid will, the court will have no choice but to split everything according to statute.
Wills and living trusts allow you to document your wishes for guardianship of any minor children and ensure that, in the event of your death, your loved ones will have access to their inheritance. Knowing that your property and other assets will serve to support your loved ones long after you are gone offers an opportunity to give you peace of mind. You will know that the wellbeing of those closest to you is protected even if the unexpected occurs.
With each individual’s assets being different, what should you choose when planning your estate? Both a will and a living trust can be appropriate depending upon the circumstances of the testator.
What is a Last Will and Testament?
A last will and testament is typically referred to as simply a ‘will’. This is a legal document that serves to outline who will receive your assets after your death. Your beneficiaries may include family members and friends as well as charities that you feel are important to support. A last will and testament does not take effect until after your death and requires that an executor be named to oversee the process. A last will and testament is subject to probate – the process of having your will proven valid by a court of law – in order to have any power. The probate process can last up to eighteen months and beyond, despite the presence of a legally valid, perfectly crafted last will and testament. Living trusts may help avoid this process and the associated wait times.
What is a Living Trust?
A living trust differs from a last will and testament in that it is not subject to probate and it takes effect immediately. A living trust is often called a ‘revocable’ trust, since it can be changed over time. This trust is a written legal document which names you, or whoever you appoint, as the trustee in charge of overseeing your assets. You can transfer some or all of your assets to a trust, at which point they are removed from ‘your’ ownership, though you maintain authority over its management for the duration of your lifetime. Under certain circumstances, you, as the creator and trustee of the trust, can change the terms of the trust.
Rather than appoint an executor to handle your estate when you pass on, as you would if you were drawing up a last will and testament, a trust requires that you appoint a successor trustee. A successor trustee inherits the power to oversee your estate as soon as you die and can begin distributing assets immediately. Assets, such as property, held outside of your region may avoid probate in its home state with a living trust.
Notes on Living Trusts
It should be noted that although living trusts do not require probate, assets that you accrue between the time of writing the living trust and the day of your death require a pour-over will, which is subject to probate like a last will and testament. A pour-over will is like a regular will but, rather than assign assets to people or organizations, it assigns all assets that are not already in a trust to a trust.
Living trusts will cost more to put into place than would a last will and testament. This is because a living trust requires that all assets – bank accounts, investments, properties, pensions etc. be made property of the trust. This requires many transactions and is a highly administrative process. The trust is not funded until assets are moved into it. This is tempered by the fact that a living trust may save money overall by avoiding probate and its associated fees.
Finally, living trusts are usually private proceedings. While last wills and testament are a matter of public domain, the details of your living trust are usually confidential (with the exception of your legal team and successor trustee).
The primary benefits of opting for a living trust rather than a will are privacy and the avoidance of the costs of probate. The truth is, however, that while a living trust may not be the right choice for everybody, a last will and testament can benefit anyone. If you are not ready to invest in the establishment of a living trust, consider putting a will in place – especially if you have dependents who rely on you and your assets for support.