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Do I Need a Trust if I Already Have a Will? The Answers May Surprise YouSalem-News.com
In most states, family can't go through probate court without legal representation.
(SALEM, Ore.) - Picture this: You are on your deathbed, surrounded by your loving family. You've had an illustrious career and accumulated a small fortune that will cater for your family long after you are gone.
Indeed, you even had the foresight to draft a will specifying what happens to your estate after your death. Your family is set for life, right?
As morbid as that sounds, it's a common situation that most people go through. While it's painful to lose a loved one, it's even more painful and costly for your family if you die without a proper estate plan in place.
Your family might be in and out of court for long before any of your assets benefit them. Sadly, their grief will only compound.
The short answer to your question: Yes, you may need a trust even if you already have a will. Why? That's the subject of this post. We look at the differences between a will and a trust, considering each of these estate-planning instruments' pros and cons.
What is a will?
A will is a legally binding and enforceable document that outlines how your affairs and assets should be handled on your demise or incapacitation. Also called a testamentary will, it allows you to call the shots from beyond the grave.
Additionally, a will allows you to give insight and direction on how to handle your assets. It lets you cater to minors, for example, by appointing a legal guardian. It also helps you consider how to transfer wealth to children.
If you are a movie fan, you’ve seen the suspense surrounding the "reading of the last will and testament" of a deceased. But, despite your best intentions to cater for your family through a will, it may not be enough to shield them from the court system.
Here's a look at some of the benefits and downsides of a will.
Pros and cons
A will beats no will, hands down. Without one, your estate goes through a more lengthy, sometimes protracted process.
Your will kicks into effect the moment you die. In most jurisdictions, the will must be lodged with the probate court, making your estate public record. Anything left behind - assets, liabilities, and knickknacks must go through probate court.
So, while your loved ones know what to expect, they still must go through the lengthy and costly probate process to take charge of your estate. How costly? According to some estimates, 2 - 4 percent of your estate goes to attorney fees and court costs.
Unfortunately, your family can't go through probate court without legal representation jurisdictions. Some exceptions to that rule include California and Wisconsin.
What is a trust?
A trust is another legally binding and enforceable arrangement in your estate-planning arsenal. A trust gives another party (trustee) the authority to handle your assets for the benefit of your beneficiaries like your children or relatives.
While there are several different kinds of trusts, a revocable living trust is the most applicable to most people. A professional trust and corporate services firm can help you identify, set up, and administer a trust that fits your needs.
What's a revocable living trust? It's a trust that you create while still alive, and can be revoked or changed during the life of a trustor (you).
As the trustor, you maintain ownership of all properties and assets held by the trust. You can also name yourself the trustee and appoint a successor trustee(s) in the event of your death or incapacitation.
Legally, a trust must identify a trustor, trustee, successor trustee, and trust beneficiaries to be valid. In fact, a trustee must be named in the document to assume control and distribution of the estate's assets following the trustor's wishes.
So why does a trust trump a will in estate planning? Read on for the benefits and downsides.
Pros and cons
Let's start with the bad news: A trust may be more expensive to set up and maintain.
You must properly register it and correctly title all properties therein. In some jurisdictions, you cannot include certain properties in the trust. That’s why it’s so critical to work with professionals who understand the intricacies.
For instance, trust services company Asiaciti Trust uses a multinational team of experts to help people navigate the complexities of setting up and maintaining trusts in different regions.
It’s also important to note that trusts generally do not protect from claims made by creditors. If you owe money, the creditors will come for you since any assets owned in the trust are still considered yours in the living trust. You still have to pay taxes on any income earned by the trust.
Compared to the last will, however, revocable living trusts shine in many ways:
First, a trust helps your estate sidestep probate court. Probate is the court-supervised process of ensuring your assets go to the right beneficiaries.
Unlike wills, trusts do not have to go through probate court. The trust owns all the assets, and since it's still "alive" even after your demise, then all your property reverts to it.
A successor trustee can step right in and take over management and distribution to beneficiaries after your death.
Second, trusts help maintain your estate's privacy. A will becomes public record when submitted to the court to start the probate process. In contrast, no one is entitled to view your trust documents other than the beneficiaries.
Third, and perhaps most important, a revocable living trust can prepare your estate in the event of mental incapacitation. While most people plan for their demise, few think about mental incompetency.
How would you want your estate managed if you no longer have mental control? Through a trust, your successor trustee can step right in and manage the estate on your behalf. However, you must expressly specify this when setting up the trust.
Ultimately, you may need both a will and a trust. A will would cater to minor children's guardianship or the giveaway of personal items.
You can also create "pour over" wills that include any omitted properties to your trust after your demise. However, a pour-over will still requires probate.
On the other hand, the trust would encompass all the major assets and properties, ensuring a smooth transition for your loved ones and beneficiaries.
As your family surrounds you on that deathbed, having both a will and a trust is the best way to express your undying love. It'll save them months of pain and misery, not to mention the financial burden.
Source: Salem-News.com Special Features Dept.
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