Having a structure in place that clearly directs who is in charge and who gets what assets, gives most people a sense of relief about their estate plan. It’s important to understand how a will works, how a trust works and when to use each of these planning tools, reports the article “Revocable trust vs. will: A guide to estate planning in the age of coronavirus” from Bankrate. In many cases, using both achieves the ultimate goal of protecting the family assets and their privacy.
The will process is more complex than its typical portrayal in film or fiction. The will directs who is to receive the property of the deceased. Without a will, property may be distributed by the courts, following the “intestate succession” law of the state. That’s usually the next of kin—not always who you want to inherit your estate.
If property is owned jointly, then it passes to the surviving owner. Accounts and assets with a named beneficiary go directly to that beneficiary. Any assets held in a trust are subject to its directions. That applies to retirement and investment accounts, as well as life insurance policies.
The probate court appoints an executor— who should be chosen by the decedent and nominated in the will—to carry out the directions in the will, pay any outstanding debts, take care of taxes and oversee the distribution of assets. The process of administering the will can be lengthy depending upon the size and the complexity of the estate. During probate, the will becomes a public document. Predatory creditors are able to see the will, including the amount of assets and their distribution. In many jurisdictions, there are court fees associated with probate that can take a bite out of the estate.
Trusts are used to circumvent some of the issues created when assets are passed via a will. Trusts are legal structures that provide protection for assets. The assets in a trust belong to the trust and are not subject to probate. When the trust is created, a trustee is named to manage the affairs of the trust. A successor trustee is named just in case the trustee cannot or will not serve.
The revocable trust is used to take assets out of the probate estate while allowing the asset owner to maintain control. Assets can be moved in or out of the trust, or the trust can be dissolved, and the assets taken back. However, there are no tax benefits, since the trust owner is the grantor, the trustee, and the beneficiary as long as the owner is alive. On the owner’s passing, the designated successor trustee takes over.
Trusts do cost more to establish than wills, but they offer a number of advantages. The use of one means that few to none of your assets will go through probate. Trusts also protect the family’s privacy, since the details in the trusts do not become public record. There is less involvement by the court in distributing assets, so fees may be lower.
Speak with an estate planning attorney about how trusts may play a useful part in your estate plan and for passing wealth down to multiple generations.
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Reference: Bankrate (April 17, 2020) “Revocable trust vs. will: A guide to estate planning in the age of coronavirus”