Wills
A Will is a legal document that allows a person to express their wishes as to how their property is to be on their death. It names a person, “executor”, to manage the estate until final distribution. It also allows for a person to name a guardian for your children.
When there is no Will, a person is said to have died intestate. When this happens, the state decides how your assets will be distributed based on state laws. The result may not meet your desires or wishes. A Will allows your desires to be met.
A will generally include:
- Designation of an executor, who carries out the provisions of the will.
- Beneficiaries—those who are inheriting the assets.
- Instructions for how and when the beneficiaries will receive the assets.
- Guardians for any minor children.
Having a Will in place will ensure the security of your final wishes and remove the burden from your loved ones in their time of grief. A Will protects your assets and your family in the event of your death. Having a Will that has been properly drafted is imperative to the process.
Probate
Probate is a legal process for settling an estate. Some types of assets are subject to probate while others with named beneficiaries will not have to go through probate. Avoiding probate when possible will save your survivors money, as well as allow for quicker access to the asset.
Types of assets that are subject to probate typically include: personal property, cash, real estate, retirement accounts with no beneficiaries named, etc.
Types of assets that are not subject to probate typically include: Trusts, Insurance, Retirement accounts with beneficiaries named, cash accounts with transfer on death instructions, etc.
Trusts
A Trust is an entity created to hold assets for the benefit of certain persons or entities. A trust can minimize estate taxes while providing other advantages. Trust can avoid probate and thus allow your beneficiaries to receive the assets quicker than they would by a Will. This will also eliminate some of the costs associated with probate preserving more of the estate for your beneficiaries.
Trusts allow one to specify how and when a beneficiary will receive the asset allowing you more control of your wealth.
Trusts will also protect your legacy. Trust can protect the asset from your beneficiary’s creditors. You can also protect beneficiaries that cannot manage money effectively.
Trusts also allow for more privacy. Probate is a matter of public record, since trusts may help assets pass outside of probate, it will remain private.
There are many types of Trusts that one may use for various assets. One of the biggest distinctions between them is whether it is a revocable or irrevocable trust.
Irrevocable trusts are permanent once executed. It typically transfers your asset outside of your estate. Irrevocable trusts are ideal when one is trying to avoid estate taxes. It may also protect a person from legal judgments, and thus more desirable for people in certain businesses that expose them to high risks of liability. Such as Doctors, Real Estate developers, etc.
Revocable Trust can be changed and is not permanent until after your death. It is also referred to as a living trust. You retain control of your assets and can dissolve the trust at any time. The main goal of this type of trust is to avoid probate. It however does not protect against estate taxes or potential lawsuits. However, estate taxes typically are not a concern of most estates as they do not meet the limits of the allowable exemptions permitted by the IRS.