An estate plan is a collection of carefully prepared documents, including revocable trusts, power of attorney, wills, and advanced health care directives that outline what happens to your assets when you become incapacitated or die. When you die without any estate plan, you put your assets at risk. The assets of those who die without an estate plan will be governed by the rules of intestate succession, which means that the laws of the state will decide how your estate is distributed. Although your family will often receive some of the assets you leave behind, there is no guarantee as to how or when they will be administered, because decisions about your assets will be made at the discretion of your state’s probate court. For these reasons, it is essential to plan out how your assets will be handled after you die.
By creating an estate plan now, you will be able to determine how your family and friends are cared for after you are dead. Estate plans provide protection so that, when you die, your loved ones won’t have to deal with all the confusion, time, and money it takes to make decisions about what will be done with your assets.
There are two types of estate plan documents: Wills and Trusts. While they are similar in some ways, they have differences which can impact your estate after your death and during your life.
What It Does
If there’s one thing you shouldn’t put off, it’s estate planning.
The most notable difference between a will and a trust is that wills only take effect upon death of the principal (the will’s creator). They also have a few significant drawbacks. A will must go through probate. Probate is the court process of transferring ownership of assets of the deceased to the beneficiaries outlined in the will or the laws of intestate succession. The reason wills go through probate is to constitute the validity of the will, ensure that the creator of the will was not influenced into unfairly benefiting any specific person (undue influence), and determine whether the will was ever changed without consent of the principal. These processes could result in your family waiting months, or even years, before receiving a distribution of your assets. While a will may be simpler to create initially, probate takes time and money beyond what is used to create the initial document. Furthermore, because a will must go through the court system, the probate proceedings are open to the public, which can interfere with desires for privacy during a trying time for a family.
Because of these drawbacks, it’s a good idea to have a will as part of your estate plan, but not as your whole estate plan.
What It Does
Unlike a will, a revocable trust, also sometimes referred to as a living trust, takes effect as soon as it is created and can be modified throughout your lifetime. Living trusts do not have to go through the probate system. When assets are funded into a revocable trust, they are automatically transferred to the trustee. Therefore, there is no need for probate and a transfer of asset ownership upon death. This means that after the death of the principal, a living trust is less costly, less time-intensive, and more private than a will.
Because your assets must be regularly transferred into a living trust, it’s a good idea to create a pour-over will as well. A pour-over will works in tandem with the trust. If you die without having transferred some of your assets into your revocable trust, a pour-over will ensures that these assets will be transferred into the trust. Essentially, a pour-over will is a fail-safe mechanism that ensures assets not in the trust are put into the trust.
What It Does
The most important difference between a revocable and an irrevocable trust is that an irrevocable trust cannot be changed after it is created. Once your assets are moved into this trust, they are no longer your property, and you will not have the power to control them. Changes to an irrevocable trust usually requires an agreement signed by the trustee and all the trust’s beneficiaries, or a judge’s approval.
The circumstances under which an irrevocable trust may be created would be to minimize estate taxes, to protect assets from creditors, or to become eligible for government programs, particularly for individuals with disabilities. A revocable trust is still included in your estate and is not protected from creditors and estate taxes.
The best course of action is to talk to an estate-planning professional to understand what fits your needs. If you have questions about creating your own estate plan, contact one of our experienced attorneys at Sumsion Business Law. We can help you create an estate plan that offers protection for your assets and peace of mind for you and your family.
