Wills and Trusts

Wills

While Wills are useful in certain situations, the Will is often the least important document in the Estate Plan.  There are usually more efficient ways to distribute assets.  Assets not owned jointly can be distributed through Trusts or institutional beneficiary forms.  Assets owned by Trusts render the Will irrelevant for those assets, because the Trust terms dictate the distribution terms.  When assets cannot be held in Trust, beneficiary forms act as the “Will” for these assets.  In fact, if the beneficiary designations conflict with the Will, the beneficiary forms control.  The Will is used to distribute an asset only if the asset was not jointly owned; was not held in Trust; and had no living beneficiaries named.

If the Will is relied upon to distribute an asset, then the Will must be probated.  Probate is the legal process by which a Will is “proven” valid, and a Personal Representative is appointed to take actions in accordance with the Will.  Probate can take many months and cost considerable money.  Except in certain client situations, avoiding Probate is generally preferable.  Avoiding Probate means not relying on the Will to distribute assets.  A thoughtful Estate Plan will leverage beneficiary designations and Trust ownership to avoid Probate.

Wills still have utility, however.  Wills specify one’s disposition of remains and certain personal assets in case of any family disputes.  Parents of minor children need a Will to name guardians for their children.  Further, people seeking to protect assets from a nursing home may benefit from a long-term care planning technique involving the use of Wills and Probate.  Thus, everyone should have a Will, even though other documents will generally be far more important to planning.

Trusts

Trusts Trusts are a set of rules for how assets get administered, both during someone’s life and after death.  Trusts are used for various reasons, including administrative convenience; avoidance of Probate; establishing oversight of assets after your passing; tax sheltering; and asset protection.  Whether a Trust is appropriate for you depends on several considerations which we would explore during a meeting. There are generally two types of Trusts:  Revocable and Irrevocable.  The preferred type depends on what you wish to accomplish, as well as what degree of control you want to maintain over assets.  Revocable Trusts are very flexible.  You have the same control over assets in your Revocable Trust as you do assets in your own name.  In addition, spouses can use Revocable Trusts to permanently shelter assets from Estate Taxes.  Unfortunately, Revocable Trusts do not provide any protection against nursing homes or other creditors. Irrevocable Trusts are the only type of Trusts which can provide protection from creditor claims or nursing homes.  These Trusts can also be used for more advanced estate tax planning.  However, with the protection afforded by the Irrevocable Trust comes a quid pro quo:  You must relinquish access to, and often control over, the Trust assets.  As a general rule, creditors and nursing homes can access whatever you can.  Thus, if you retain access to Trust assets (as with a Revocable Trust), those assets can be reached by a creditor and a nursing home.  On the contrary, Irrevocable Trusts provide asset protection because you are giving up access to the assets.  The exception would be for your home, in which you could retain the right to reside despite the property being in an Irrevocable Trust.

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