You feel great. You've never been diagnosed with a serious illness. Maybe you've never even broken a bone. Do you need a will or trust if you feel fine? Likely, you're thinking no. No one needs to think about estate planning when they feel fine, right?
No matter your age, health, or wealth, it is important to consider the benefits of getting involved in the estate planning process. With legal documents such as a will in place, you gain a measure of control over the way your assets are distributed, and peace of mind knowing that your surviving spouse, minor children, and other loved ones won't be locked in protracted legal battles over who gets what. It can also save them time and money during the probate process even if there are no fights over how assets are distributed.
This article looks at the differences between a will and a trust and what each legal document does in the United States estate planning process. If you have questions about wills or the different types of trust after reading this article, schedule a free consultation with Ball Morse Lowe.
Do You Need a Will or a Trust? Which is Right for You?
Before we can discuss factors about which legal document is right for your estate plan, it is first important to discuss the purpose of a will and some of the different types of trusts.
A will is typically the piece of the estate planning puzzle that most people think of first. Wills can be as general or specific as necessary. In some cases, people create a will that specifically describes the distribution of every asset - from clothes to furniture to comic book collections. In other cases, people will create a legal document that might name a personal representative who can ensure that the assets are distributed as he or she sees fit. A will is also used to name a legal guardian to care for minor children.
If you do not have a will when you die, it is known as dying intestate. The probate court follows state law and assets are distributed according to it. Legal guardians for minor children are also named by the probate court. Without a will, the probate process takes more time and money than going through the process when there is a will involved. As long as heirs named in the will do not contest the will, the probate process involving a will is less time-consuming and expensive compared to the probate process without a will.
However, a will does not help you avoid probate. It also does not minimize or eliminate the estate tax. Also, the distribution of assets with a will can only take place after creditors of the estate are paid. It also does not protect the assets given to beneficiaries from their creditors once they have custody of the assets. That's where different types of trusts come in.
One of the most common types of trusts used is known as a revocable living trust. A revocable living trust can be used to care for your surviving spouse, minor children, or any other beneficiary designations you decide to make. During your lifetime (which is where a revocable living trust gets its name), your assets are held by the trust. These are assets that you choose to have held by the trust. A revocable living trust differs from other types of trusts because it is revocable. During the time you are alive, you can make changes to the trust. This type of trust is also great for avoiding probate. After your death, a successor trustee takes over and assets are distributed to beneficiary designations according to the trust terms.
If you have life insurance or plan to buy life insurance, a life insurance trust is another type of trust that may be beneficial for your estate planning. However, it functions quite differently from a revocable living trust. Even if you establish it while you are alive, you lose the ability to make any sort of changes to the trust (although you must keep paying your premiums if you wish to keep the life insurance policy that funds the trust in place). You also cannot take out a loan against the life insurance policy.
The Magic Question: Do You Need a Will or a Trust?
To answer the magic question of whether you need a will or trust, you must examine your own specific life as well as your estate planning goals. We understand that no one likes to consider their own mortality, but the reality is that a serious accident, catastrophic injury, or medical emergency is only one step away. A devastating car accident or debilitating mental condition can leave your loved ones in emotional and financial turmoil. With estate planning documents such as a will or trust in place, you can avoid unnecessary confusion and family disputes. The best way to avoid issues in the future is to address them in the present. However, determining which trust you need or how you want your assets distributed through your will is often best answered with the help of an experienced estate planning attorney.
Whether you are drafting a simple will or developing a trust that financially protects your loved ones, Ball Morse Lowe can help. We provide free consultations for estate planning. We can help educate you so that you can decide which type of trust is best for you. To schedule your free consultation, click here.