You have worked hard for your money and made every attempt to be a conscientious saver. So it's only natural that you want some control over what happens to your assets after your die. Even if you are a person of modest means, you have an estate—and several strategies to choose from to ensure your assets are distributed according to your wishes and in a timely fashion: your estate plan. The right strategy depends on your individual circumstances. For some, a living trust can be a useful and practical tool. For others, it may be a waste of time and money. What is a living trust anyway? And how does it differ from a last will?
A will, also known as a last will and testament, is a written document—signed and witnessed—that indicates how your property will be distributed at the time of your death. You can revoke a will, and an existing will is subject to amendment at any time during your lifetime. It also allows you to appoint a guardian for your minor children.
A living trust provides lifetime and after-death property management. If you are serving as your own trustee, the trust instrument will provide for a successor upon your death or incapacity. Court intervention is not required. Living trusts also are used to manage property. If you are disabled by accident or illness, your successor trustee can manage the trust property. As a result, the expense, publicity, and inconvenience of court-supervised management and distribution of your estate can be avoided.
If a living trust is properly written and funded you can:
Most importantly, a living trust is useless unless it is funded. A living trust only can control those assets that have been placed into it. If your assets have not been transferred or if you die without funding the trust, the trust will be of no benefit, as your estate will still be subject to probate. In addition, there may be significant estate tax issues.
There are many positive reasons to establish a trust, but do not overlook the fact that it will involve more up-front effort and expense. To determine if you should make the extra effort and invest in a trust, answer these questions:
Do you have minor children? A trust allows you to establish provisions specifying when a child will be entitled to any assets held in trust.
Do you have children, grandchildren, or other dependents with special needs? In those instances the access or control those heirs have over their inherited property may need to be limited. With a standard will your property can be passed on to those heirs, but a will alone does not allow you to exercise much control over their use of the property. Also, if your loved one with special needs receives government benefits, be aware that inheriting a lump sum in a will could increase their assets such that they might become ineligible for needed benefits.
Will your estate be subject to estate taxes? If the value of your estate exceeds the current estate tax threshold, you may wish to consider setting up a trust with tax planning provisions. The estate tax threshold frequently changes, so be sure to check with the IRS to determine whether or not estate tax is a concern for you.
Will you actively manage your estate plan? If not, a living trust may not be a suitable solution. Again, a trust will only be beneficial if assets are transferred into it.
So what is best for you? In many respects, a living trust and a will accomplish similar objectives. A trust, however, allows you to realize other objectives that a will cannot. But those advantages don't come without a price. Whether or not a living trust is better for you than a will depends on whether the additional advantages are worth the cost. When choosing, remember that one size does not fit all. What is right for one person may not be right for everyone. Your estate plan should be prepared in a way that best meets the needs of you and your family, after consultation with your estate planning attorney.
Contact Barry Law, Inc. today to discuss your options and the benefits of estate planning.