(Recorded on 03/02/21) Topics covered on this video coaching call In this special video presentation, trading coach Jerry Robinson provides his general market comments, shares several charts, and answers your trading and investing questions. Included in this video:...
Individuals involved in estate planning or financial planning often ask us which is better: will vs living trust. Well, one is not “better” than the other, but rather they play different roles in your plan. Read on to understand the benefits of each estate planning document.
What is a Will?
The first document in any good estate plan is a will, which is often said to be the cornerstone of any estate plan. Most adults should have a will, even if you do not have children or much money to leave behind. Inevitably, everyone has at least a few wishes upon their passing, and a will is a legally binding document in which you may express those wishes. Here are 4 reasons for setting up a will now:
1. Determine who gets your stuff. The main purpose of a will is to disburse property to heirs after your death. If you don’t leave a will, disbursements will be made according to state law, which might not be what you would want. Furthermore, you do not want your family members arguing over who is supposed to get your stuff at the moment they are grieving the most. You may tell your husband that you want him to have your diamond jewelry at your death, but your sister may claim you told her the same thing. These types of squabbles can become messy if not taken care of beforehand in a simple will.
2. Name the executor of your wishes. You can name the person (executor) who will manage and settle your estate. Choose someone you trust because they will have the sole responsibility of carrying out your wishes. Also, make sure you ask them in advance if they will be able to handle the responsibility, especially if you have a more complicated will. Then, go ahead and review the will with your executor to make sure they understand their role upon your passing. If you do not name someone as executor, the court will appoint an administrator, who might not be someone you would choose.
4. Share your personal wishes upon death. You may also want to include a letter of instruction, also called a testamentary letter or side letter. It is an informal, non-legal document that generally accompanies your will and is used to express your personal thoughts and directions regarding what is in the will. This may include such items as your burial wishes or where to locate other documents. This can be the most helpful document you leave for your family members and your executor. Unlike your will, a letter of instruction remains private. Therefore, it is an opportunity to say the things you would rather not make public. A letter of instruction is not a substitute for a will. Any directions you include in the letter are only suggestions and are not binding. The people to whom you address the letter may follow or disregard any instructions.
What is a Living Trust?
A living trust, also known as a revocable trust, is a separate legal entity you create to own property, such as your home or investments. The trust is called a living trust because it’s meant to function while you’re alive. You control the property in the trust, and, whenever you wish, you can change the trust terms, transfer property in and out of the trust, or end the trust altogether.
Not everyone needs a living trust, but it can be used to accomplish various purposes.
The primary function of a living trust is typically to avoid probate. This is possible because property in a living trust is not included in the probate estate.
Why Would I Need to Avoid Probate?
1. Probate Can Be Expensive and Complex. Depending on your situation and your state’s laws, the probate process can be simple, easy, and inexpensive, or it can be relatively complex, resulting in delays and expenses. This may be the case, for instance, if you own property in more than one state or in a foreign country, or have heirs that live overseas. Further, probate takes time, and your property generally won’t be distributed until the process is completed. A small family allowance is sometimes paid, but it may be insufficient to provide for a family’s ongoing needs. Transferring property through a living trust provides for a quicker, almost immediate transfer of property to those who need it.
2. Businesses or Portfolios Can Suffer. Probate can also interfere with the management of property like a closely held business or stock portfolio. Although your executor is responsible for managing the property until probate is completed, he or she may not have the expertise or authority to make significant management decisions, and the property may lose value. Transferring the property with a living trust can result in a smoother transition in management.
3. Maintain Your Privacy. Avoiding probate may be desirable if you’re concerned about privacy. Probated documents like a will, or an inventory sheet become a matter of public record. Generally, a trust document does not.
Keep In Mind…
- Although a living trust transfers property like a will, you should still also have a will because the trust will be unable to accomplish certain things that only a will can, such as naming an executor or a guardian for minor children.
- There are other ways to avoid the probate process besides creating a living trust, such as titling property jointly or adding a Paid on Death with your bank accounts or simply naming a beneficiary by name on your investments.
- A living trust does not generally minimize estate taxes or protect property from future creditors or ex-spouses.