A will for your wishes
Anyone who owns anything of value should have a will. It’s the most basic estate-planning document detailing your wishes, including who receives your assets. You can specify if the assets are to be distributed immediately or over a period of time through a trust. If you have minor children, you can name who becomes legal guardian for them. You can name the executor of your estate – they make sure the will is executed according to your instructions. If you die without a will, called dying intestate, the probate court will make decisions on the passing of your assets according to your home state’s laws, and decide who gets what.
You don’t need a lawyer to make a will – there are many books and online resources that show you how to draft one for little to no cost – but a poorly written will could be challenged in court. Think about working with an estate attorney to make sure your wishes are clearly communicated.
Note that not all your assets pass through the direction of your will. If it‘s owned jointly, has a named beneficiary or has a “payable on death” title, the asset won’t pass through the will.
Should you trust in a trust?
A trust is a legal entity that holds the title to property and assets that would otherwise be registered in your name – such as your home, cars and financial accounts. A trust offers flexibility and protection. In a trust, you can give detailed conditions on how your assets are distributed, such as delaying an inheritance to a child until a specified age or until some goal is achieved, like graduating from college.
Many people set up what’s called a revocable living trust. Revocable means the trust can be changed by you at any time and you control all the assets in the trust. Because of this hands-on control, the IRS considers the trust assets to be part of your estate and subject to estate taxes - but it’s possible to structure a trust in a way that may reduce these taxes.
Like a will, a trust is a legal document. It can be a good idea to enlist the services of an attorney to draft a trust. Look for an attorney who specializes in the areas of probate, trusts and the estate planning laws for your state.
A living trust offers a couple of advantages:
- Probate avoidance – Probate is the court-supervised process of organizing and distributing assets according to a will. It can be time-consuming and typically costs 3-10% of an estate’s value. Property held by a trust does not go through probate. You can include a provision called a pour-over will, which automatically transfers any assets that were not already in the trust at the time of death into it.
- Privacy – A living trust never becomes public record. Instructions are kept private, so no one needs to know that your 17-year old son just became a millionaire.
A word about taxes
Some states impose an inheritance tax on the people (beneficiaries) who receive assets through a will or trust. Often, spouses and children of the deceased may be taxed at a lower rate than other heirs. The federal government also imposes a tax on your entire estate value.
Take control of your estate
Your estate consists of everything you own. It includes your cash, investments, life insurance policies and personal property. Having a will and perhaps a living trust that are regularly updated will give you more control and make it easier for those involved to manage your estate plan. Consider working with an attorney to determine whether a will or a trust makes sense for you.