A trust against. Will and why you probably need both

Talking about the inevitable can be difficult. But not planning for your death can lead to significant emotional, financial, and relationship issues. Financial advisor and educator Stuart Spivak says many of his clients don’t know where to start. He recommends learning about wills and trusts.

A desire

A will be, “Last Will and Testament”, is an instrument of power and the cornerstone of an estate plan. Creating one gives you control over the distribution of your assets. If you die without a will, the state decides what happens to your property regardless of your wishes or concerns. Believe it or not, only 30-35% of adults have a will in place. It’s no surprise since no one wants to remember their own mortality or spend too much time thinking about what should happen once they’re gone. A will is a legal document by which a person, known as a “testator”, or a couple, outlines their wishes and instructions regarding the distribution of their property after death.

living will

A living will, also known as an advance directive, is the document that sets out your wishes regarding end-of-life decisions. They may include resuscitation decisions, tube feeding, and organ or tissue donation. You can also indicate your level of comfort care, such as pain management, palliative care, and palliative care.

Before going any further, it’s important to review some key terms when it comes to a will:

  • Executor(s): responsible for carrying out the wishes expressed in a will.
  • Guardian(s): designated to take care of your minor child(ren). If you die without appointing a guardian, the court will decide who will take care of your child(ren).
  • Approval: the legal procedure during which the validity and authenticity of a will are verified and determined. A will is subject to verification.
  • Financial and medical power of attorney: Vital documents that appoint someone if you are unable and therefore unable to make these decisions yourself.

Deciding on an executor and guardian is not an easy decision. The executor is most likely a trusted loved one and the one responsible for carrying out the wishes of the deceased. It’s an honor to be chosen for this role, but at the same time, it can be a “curse”. With this role comes enormous responsibility for what can be a very long time. The executor can be a trusted friend, a licensed professional – like a lawyer or accountant – or a third party.

A guardian for your minor children is also very personal and an important decision that should not be taken lightly. This person or these people would most likely be a family member or relative. These selected people would be named in your estate documents and should be interviewed in advance. For minor children, it is important to ensure that the financial arrangements are specified: where will the money come from to take care of your child(ren) if you are no longer there? At what age can your children access the cash once their health, maintenance, education and support needs have been met? You should set out these wishes in your estate plan.

A financial power of attorney would come into play if or when someone is physically or mentally unable to pay bills, do banking, or manage their money safely. A medical power of attorney would authorize the person or persons to make medical decisions if or when you are physically and/or mentally unable to do so for yourself.

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A confidence

A trust is the most comprehensive way to protect your assets and loved ones while avoiding probate. There are different types of trusts, so it is important to consult a professional to determine if a trust is necessary and, if so, what type. The most common type of trust is a revocable living trust.

A revocable living trust is normally revocable or changeable by the person who initially contributes assets to the trust – the trustee. Although the trustee retains control of the revocable inter vivos trust, the trust itself remains a flow-through entity, which means that no additional tax returns are filed (the tax identification number is usually a social Security). Upon the death or incapacity of the trustee, the nature of the trust changes and the terms become irrevocable, locking instructions and distributions in place. The trust is then administered through a process outside of probate, and the appointed trustee(s) work to distribute the assets in accordance with the wishes of the trustee.

Many people don’t want to deal with probate because it’s public, time-consuming, and can be expensive. The revocable living trust is easy to create and manage, but it still bypasses probate and allows restrictions on how assets are distributed. A revocable living trust is an effective estate planning tool that allows families to pass on their hard-earned estate without fear of family disputes.

There are also other types of trusts: irrevocable trust, special needs trust, pet trust, gun trust – just to name a few.

Irrevocable trust

An irrevocable trust is generally not changeable by the trustee and therefore controlled by a third party – the trustee. An irrevocable life insurance trust is often used to hold a life insurance policy to withdraw proceeds from a taxable estate.

Special Needs Trust

It is so important to have in place if money and/or assets will be left behind for a loved one who has special needs, whether physical or mental disability. When properly structured, this type of trust will not compromise the government assistance a minor or adult child receives.

pet trust

As you might guess, this document would state the wishes you have for a pet or pets if/when you predecease them.

gun trust

A gun trust allows you to protect your gun(s) during and after life without the complications that typically arise after the death of a gun owner.

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A will against. Trust

Everyone should have one will be and other basic estate planning documents, but it depends on whether a trust is necessary or not.

A trust may not be necessary if your estate is less than a certain amount (usually $100,000, but the amount may vary from state to state). You can also choose to withdraw from a trust if your assets can be passed on to loved ones by beneficiary designation and/or transferred/paid out upon death. We believe that if you own property in multiple states, a trust may be beneficial.

Spivak suggests that if someone is uncomplicated and their wealth consists of assets that can be passed on death by beneficiary designation (like an IRA, 401(k), or life insurance), a trust is generally not required.

Benefits of a Will and Trust

A will states your wishes instead of the state deciding what is best for you and your loved ones. A trust helps you avoid probate; it gives you privacy. A will is not private and the information in a person’s last will becomes public information once probated. This is not the case with a trust. A trust will also facilitate administration if minor children are involved. It protects your children and/or grandchildren from themselves in the event of a lawsuit or divorce.

Next steps

Most of the time, Spivak recommends speaking with a financial advisor who can usually refer you to an estate attorney. Most people don’t know what they don’t know. Having a professional help you with this is money well spent in my opinion.

The average cost of an estate plan can vary greatly depending on your needs. A complete estate plan that includes a will, revocable trust, financial and medical powers of attorney, and a living will should cost around $2,000 to $2,500. The total amount would depend on whether these documents were prepared by an estate attorney or a document preparer. The cost also fluctuates if the documents are cookie-cutter or personalized. Either way, it’s worth getting comprehensive advice in this important area.

Pro Tip: Keep in mind that estate planning documents are state-specific when it comes to health care powers of attorney, for example. If someone wants to hire an estate attorney, they must be licensed in your state of residence.

This material has been prepared by TravelAwaits and does not necessarily represent the views of the presenting party or its affiliates. This information comes from sources believed to be accurate. Please note: investing involves risk and past performance is no guarantee of future results. The publisher is not engaged in the provision of legal, accounting or other professional services. If assistance is required, the reader is advised to seek the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied upon for the purpose of avoiding a federal tax penalty. It is neither a solicitation nor a recommendation to buy or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and do not represent any particular investment.

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