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Wills vs. Trusts

When Ellen’s husband Joe died, he left the family in pretty good financial shape. After his death, Ellen found that most of the family’s property was in Joe’s name. Joe had a will, but because the property was titled in Joe’s name, Ellen first had to go through probate in order to be able to use the property.

The probate process seemed to drag on and was pretty costly to Ellen. She even had to go to court to ask the judge to allow the estate to pay her some money for daily living expenses. This was a huge embarrassment for her.

One way this headache could have been avoided would have been by using a trust instead of a will.

A will is a document that tells the world where you want your assets to go when you die. It is effective only upon death. Unfortunately, your will only controls property you own in your own name at the date of death. It does not control property titled in joint tenancy or property that you leave through beneficiary designations such as retirement plans and life insurance unless the named beneficiary is your estate.

The problem with a will is that even though it states where you want certain assets to go upon death, those assets remain titled in your name. As a result, when you die, your loved ones cannot just step in and start handling those assets. Your loved ones are forced into the probate court and have to complete a lengthy transferring process of the assets to the beneficiaries named under your will, waiting for an order from the probate court.

Because a will only becomes effective upon death, it does not address what happens in the event you become mentally incapacitated and can no longer handle your financial affairs. With a will-based estate plan, attorneys typically utilize a planning tool called a Durable Power of Attorney. This is when one or more persons are designated as the Agent for the Principal, (this is you) who is granting the authority. If there is no Durable Power of Attorney, or in the event the Power of Attorney is not accepted by one or more financial institutions, a disabled person’s loved ones might have no alternative but to file a petition with a court to be appointed as a guardian or conservator (perhaps a person unknown to the family) for the disabled person. If approved by the court, the Guardian will be granted specific powers to administer the disabled person’s assets, and often further authorized to handle the disabled person’s daily personal needs.

A trust is a legal contract in which property is held by one or more trustees (you and/or your spouse) for the benefit of one or more beneficiaries. There are a number of different types of trusts. Testamentary trusts are trusts created by a person within his or her Will. A testamentary trust might be established to preserve the estate tax exemption; to provide for creditor protection of a spouse, children or other beneficiaries; to provide for a special needs beneficiary; or for a variety of other purposes.

The revocable living trust acts as a will substitute and contains instructions for managing your assets during your life and also upon death. A living trust is created during your lifetime and becomes effective immediately when you sign it. After a trust is created, your assets should be transferred into the name of your trust. You can transfer property to the trust, and still maintain control and use of all the property while living. You can revoke or change the trust at any time. You can be the trustee of your trust while living, and because these transfers are made ahead of time, upon your mental incapacity or death, your successor trustees can step into your shoes and start handling your financial affairs without a court order or the need to establish a conservatorship.

Upon your death, a will becomes a public document through the probate system. Your financial data and list of beneficiaries is on display. A trust, on the other hand, generally remains a private document, out of the public eye.

Although a trust needs to be administered upon your death, the cost is normally lower than going through the probate process. The counseling and design of a trust-centered plan is often more expensive to initially create, but it is more cost effective in the long run.

To determine what type of planning is best for your unique family’s needs, it is best to consult with an estate planning attorney to review your options.

If this type of planning is interesting to you click here to have our office call to set up a time to discuss this with you.

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