People often believe that estate planning only benefits the very wealthy or old, but nothing could be further from the truth. It’s something people who own anything of value or whom people depend on financially. Estate planning is something everyone needs to engage in regardless of age, the estate size, or marital status. If you have a bank account, investments, a car, a home, or other property – you have an estate. More importantly, if you have a spouse, minor children, or other dependents, an estate plan is critical to protect their interests and future financial needs.
Do I need a Will or Trust?
In many cases, you may want a will and trust(s) as part of your estate plan. A will helps to ensure that property is passed according to an individual’s wishes and is drafted according to state laws. Trusts can be valuable in limiting estate taxes and legal challenges to your will. Trusts specify how and when the property is distributed.
A Will Helps To:
- Ensure that your possessions will be distributed as you wish. The law decides how your estate will be distributed if you die without a will. Although some property will automatically pass to a spouse or children, the exact distribution depends on the value of the property and the terms of the title deeds. A will ensures that your wishes will be carried out and supersedes ownership terms and titles.
- Appoint and outline the powers of the executor. Writing a will allows you to decide who will oversee and manage the distribution of your estate. Designating a trustworthy and impartial executor provides peace of mind that the terms of your will and wishes will be honored.
- Appoint a guardian for minor children. Your will serves as a legal guiding document for the care of minor children in the event of the death of both parents.
- Specify funeral wishes. Specifying your funeral wishes in your will reduces stress for loved ones and ensures your wishes will be honored.
- Expedite the legal process. It is faster and less costly to settle an estate with a valid will. It helps reduce unnecessary legal fees, which, in turn, helps protect the value of property and assets passed to your beneficiaries.
- Reduce stress and heartache for loved ones. A will that clearly outlines your wishes for funeral arrangements and property distribution will reduce confusion and family disagreements during a stressful and emotional time for family members.
When is a will not enough?
While a will is an important estate planning tool, it is not designed to offer certain protections available under a trust. One key difference between a will and a trust is that a trust can include an incapacity clause stating who you want to manage your affairs if you cannot do so during your lifetime. While a will can determine who may receive your assets outright, a trust provides the opportunity to designate how and over what period or age your property or assets may be dispersed to heirs. This is critical when beneficiaries are minors, or in the event you want to place specific parameters on the assets adult heirs may access over a given time period. Trusts can also help ensure proper management of your assets during your lifetime.
- During your lifetime, you are the trustee of your trust. You’re free to manage the property or assets in your trust in the manner you choose. A trust created and funded during your life is generally called a “living” or “revocable” trust.
- If you are incapacitated, a trust can help ensure that your needs are met and that your finances are kept in good order for your benefit.
- Upon death, a trust becomes “irrevocable,” and your assets are managed and distributed by your trustee, per your instructions, throughout the trust’s existence.
Communication is Key
While many life events provide us with adequate time to prepare, such as marriage, the birth of a child, or retirement – others, like accidents, injuries, or the death of a loved one, can happen without notice or a chance to prepare emotionally or financially. Knowing where to find important legal documents and financial information in the days and weeks following the incapacitation or loss of a loved one can help reduce stress in a time of crisis and assist you, and your family members avoid mistakes that may be difficult to reverse later. The ideal time to initiate essential discussions concerning legal and financial matters and end-of-life wishes is well before an illness, incapacity, diagnosis of dementia, or mental incompetence or death occurs. This help to ensure that family members:
- Are aware of advanced directives, including living wills, which specify wanted or unwanted procedures, and do-not-resuscitate (DNR) orders. These documents should also be readily available for you to take to the hospital if a loved one is admitted.
- Know the location of wills, trust documents, birth certificates, marriage certificates, Social Security information, life insurance policies, financial records, keys to a safe deposit box, etc. It’s also a good idea to inform grown children or other trusted individuals about the location of essential documents in the event of an accident or illness while traveling.
- Understand your wishes and preferences regarding funeral arrangements, organ donation, burial or cremation, and more.