Preparing for the distribution of your estate (assets you own at the time of your death) can be a daunting and stressful time. This is a completely natural reaction to the gravity of the decisions that need to be made and no one wants to make the wrong one. One of the most common dilemmas is whether to have a will or a living trust – or both. Knowing the fundamentals of the probate process along with the differences and similarities between each will help you alleviate some of the anxiety associated with making these decisions.
After a person dies, ownership ( legal title) of his or her property, assets and personal effects must be passed on (legally transferred) to the beneficiaries (heirs) listed in the will. If there is no will, the persons receiving assets are designated by State law through “Probate” which is the legal name given to this process. Probate is the administrative and court process that takes place after you die. It includes proving the validity of a will, identifying, inventorying, and appraising property, paying debts and taxes and distributing any remaining assets.
The probate process can drag on for months or years and can severely diminish the wealth you have accumulated. Wills and Trusts can reduce the probate process dramatically so your heirs can more efficiently inherit what you want them to receive.
A will is a legal document that lets you tell the world who should receive which of your assets after your death and select an Executor of your estate. It also allows you to name guardians for any dependent children. Without a will, the courts decide what happens to your assets and who is responsible for your kids through the probate process.
Why Do I Need A Will?
Wills do have limitations. In particular, the beneficiary designations on financial accounts, insurance policies and other assets take precedence over wills, so it’s important to make sure your beneficiary designations are up to date and reflect your wishes.
A trust is an arrangement in which one person (the Trustee) holds and manages property for the benefit of another person (the Beneficiary). There are two basic types of trusts: living trusts and testamentary trusts. A living trust or an “inter-vivos” trust is set up during the person’s lifetime and property is transferred into trust before your death. A Testamentary trust is set up in a will and established only after the person’s death when the will goes into effect. In addition, trusts can be revocable or irrevocable.
Revocable vs. Irrevocable Trusts
Does a Living Trust Avoid Probate?
Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee, the person you appoint to handle the trust after your death, simply transfers ownership to the beneficiaries you named in the trust. In many cases, the whole process takes only a few weeks, and there are no lawyer or court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.
Should You Choose a Will or Trust?
Wills and living trusts are not mutually exclusive estate planning devices. Having one does not preclude you from having the other. In fact they can be used as complimentary devices to make sure all of your assets will be distributed according to your wishes. Most trusts do not provide instructions for everything in your estate resulting in leftover property.
A will acts as a back up for what is not included in the trust, as it can have a clause naming a person(s) who you want to receive all leftover property. Without a will, anything you didn’t transfer into the trust will go through the long and expensive probate process. Through probate, assets will be distributed according to state law – and invariably, not the way you would have chosen to have your property dispersed.
Estate planning is a process that can be complicated and create anxiety, knowing the fundamentals of wills and trusts helps to ease some of the discomfort.
The Hintzen Law Firm, PLLC