You have worked very hard during your life and it is natural that you want to leave a legacy to your loved ones. It would be wise to find a way to maintain control of the assets. No one wants the IRS, creditors or even a divorce to prevent loved ones from enjoying the benefits of your inheritance. Even if you are a simple person, you have an inheritance. Your estate consists of all your personal and tangible properties, such as, retirement accounts, houses, jewellery, rare collectibles, etc. There are many strategies to ensure your property is distributed the way you want it and on time. The most basic methods of transferring inheritance are Wills and Living Trusts, but which one is better for you?
So What Is Will and How Does It Work?
A will is a document that directs the distribution of property owned by an individual at the time of death. To be effective, a will must be executed in accordance with the statutory requirements of your state. Generally, it must be in writing, signed by a sane person and by competent witnesses. It can be revoked or changed at any time during your lifetime, however, any changes to the will require that you and your witness sign again. After your death, your chosen executor must petition the court to begin the probate process. As part of the process, your property must be assessed for real estate taxes. The probate process can range from six months for minor wills that are uncontested and can last for years if there is a delay in court proceedings. Like litigation, probates become part of the public record and are available for anyone to view.
…And What Is Living Trust and How Does It Work?
In a living trust, the grantor transfers assets to the trust but may retain the power to administer or revoke the trust. Trust also allows the grantor to decide who will be the successor trustee and the beneficiaries of the trust upon death. If you serve as your own guardian, the instrument of guardianship will provide a replacement upon your death or disability. Therefore, after death, the court does not need to intervene and there is no need for a will. Trust can also be useful if you are disabled by accident or illness; alternate trustees can manage trust property without lengthy litigation. Because litigation is unnecessary, the cost, publicity and inconvenience of court-controlled distribution of your property can be avoided.
A properly written and funded trust will:
- Avoid probate of your assets;
- Plan for your own possible disability;
- Control what happens to your property after your death;
- Prevent your financial affairs from becoming a matter of public record.
Trusts may also include provisions for caring for family members with special needs. It may be in the best interest of beneficiaries with special needs to have limited access to their inherited property. With a standard will, your property will pass to the heirs, but a will alone doesn’t allow you to exercise much control over their use of the property.
Trusts can also be established by minimizing land taxes. If the value of your property exceeds the current property tax threshold, you may want to consider setting up a trust with tax planning provisions. An attorney will be able to advise you depending on your specific situation.
So the bottom line is…
Wills are easy to create, take a little time and money, but may leave a heavy burden on your loved ones due to litigation. Trust is more sophisticated than willpower and allows you to achieve more than willpower, but don’t overlook the fact that it involves more effort and upfront costs. However, trust allows you to set terms that allow you to feel peace of mind and know that even if you are no longer with your loved ones, they will enjoy your legacy exactly as you intended. When choosing between a will and a trust, keep in mind that one size does not fit all. What is right for one person may not be right for everyone. Consult with your attorney; Your estate plan should be prepared in a way that best meets the needs of you and your family.