Thinking about creating an estate plan can make your shoulders sag. The prospect of untangling a raft of legalese and making decisions about stuff you don’t want to think about (or understand very well) can descend upon your psyche like a large black cloud.
But estate planning does not have to be complicated or ponderous. Your estate plan can be done thoughtfully and incrementally. You don’t have to make every decision now, you don’t have to create every document now, and you don’t have to imagine what you think might happen 40 years down the road. In fact, a reasonable approach is to take some prudent steps now, and assume that you will amend your plans periodically as your life and financial situation changes, and as your views change about your relationships and your priorities.
To get you going down the road toward an estate plan that you can feel good about, one of the most basic issues that can help you is to understand what wills and trusts are, and how they differ.
Wills and Trusts Have Different Purposes
The most fundamental difference between a will and a trust is that a will is only operative upon your death, and it is specifically intended to explain how you want your estate allocated after you die. While a trust can also be utilized to fulfill that role, a trust–or any number of trusts–can be created right now and be put into operation right now to manage your assets for specific purposes determined by you.
People often incorporate both wills and trusts as part of their estate plans.
Why is it Important to Have a Will?
As stated above, the purpose of a will is to specify how you want your estate to be divided upon your death. You can only have one valid will, and it goes into effect only upon your death. While you are alive, you are free to change any of its provisions, so long as you are capable of making sound decisions free of coercion.
In a will, you can specify who you want to be your executor–that is, the person who is responsible for carrying out the wishes expressed in the will. You can dictate what kind of funeral services you want and where you want to be buried. Importantly, you can also designate who you want as guardian(s) of your minor children.
Beyond that, you can use your will to specify in as much detail as you please what assets you would like to leave to people you choose, whether family, friends, or charities. If your will is properly drafted and executed, the wishes expressed in your will take precedence over the wishes of anyone else who might otherwise lay claim to any part of your estate.
Executing a will is important for several reasons. First, even if you have told family and friends in exacting detail what you want done with all of your property when you die, your wishes will have no legal effect at all in the absence of a duly executed will. Second, not only will your wishes be ignored, but the state in which you die will dictate exactly how your assets will be allocated according to its own laws.
Why Would I Want a Trust?
Trusts, as stated above, can be used to distribute your assets upon your death according to your wishes, but trusts can go far beyond wills in managing your estate both before and after you die.
There are many kinds of trusts. A trust is a separate legal (and in some cases taxable) entity. When you create a trust and put assets into it, the trust becomes the owner of the asset, even though the trust itself may remain part of your personal estate. Putting money or any other asset into a trust does not necessarily mean that you cannot access it. A revocable trust allows you to change your mind about what to do with that trust–or even to dissolve it–at any time up to the point you die.
For example, suppose you inherit a sum of money, and decide to use it to fund a revocable trust to be utilized for your young children’s college education. You are the grantor: the one who puts money in. Your children are the beneficiaries: the ones who are intended to benefit from the trust. You designate yourself and your spouse as trustees: the ones who are responsible for making sure that the funds are invested wisely and spent as intended. But if you lose your job a few years down the road, you will still be able to take funds out of the trust and use them to pay your bills if you need to. You can even terminate the trust completely.
Trusts can be set up for any number of purposes. You can provide funds to address a special need: a disabled child or spouse, for example. You can set up a trust for a financially reckless child, so that some other responsible person(s) can manage the money they inherit from you. You can set up a trust that provides income to you while you are alive, but benefits a charity when you die. You can create a trust with a minimal amount of funds at first, and fully fund it after you die through your will. In short, trusts are a useful way to enable you to set the terms for managing your estate both now and after you pass away.
This cursory explanation only touches on the surface of wills and trusts, and there are very many legal niceties that apply to creating and executing both. But they are both important features of a comprehensive estate plan.
To fully understand how a will or trust can help you to manage your assets as you wish now or in the event of your death, consult one of our qualified estate attorneys. At eLegacy, we can answer your questions, and resolve contingencies that you probably have not even thought about. Call eLegacy today and gain peace of mind knowing that you are providing for the security and well-being of those you care about–not only now, but long into the future.