While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones of the expense, delay and frustration associated with managing your affairs when you pass away or become incapacitated.
Revocable Living Trusts
A Revocable Living Trust is a powerful estate planning tool that allows you to maintain control of your assets during your lifetime. When you create a Revocable Living Trust (also known as a Living Trust or Revocable Trust) you become a “Grantor.” As Grantor, you are the beneficiary and can would serve as the trustee of the trust during your lifetime. All income from assets in the Living Trust are still reported on the grantor’s tax return. Therefore, as the grantor you are free to buy and sell property in the Revocable Living Trust and add or remove assets at any time. A Revocable Living Trust also includes provisions to have your assets managed during any periods of incapacity and privately transfers assets to your loved ones after you pass away.
Much like a Will, a Revocable Living Trust is a legal document that provides for the management and distribution of your assets after someone passes away. But unlike a Will, a Revocable Living Trust allows for assets to transfer to beneficiaries quickly and privately after the grantor passes away without having to get the courts involved. It also includes provisions to have your assets managed during any periods of incapacity.
Wills
Most people know about wills and their basic purpose – to ensure that one’s hard earned assets go to the right beneficiaries when an individual passes away. However, wills can be used for a lot more than simply dictating who gets a person’s antique lamp collection. Here’s a list of some of the very valuable things a will can do:
- List who gets what. The most common purpose for a will is to name which individual, or group of individuals, will receive particular property belonging to a person when they pass away.
- Name guardians for children. Typically, a will is the document that states who should raise a person’s children if something happens to the parent. The will also usually contains at least one alternate in the event the first choice cannot serve.
- Establish trusts. In many cases, a person may not want a child or loved one to receive all of the property that they are inheriting at once. Or a person may want the beneficiary to be able to use the property for a while, and then for it to pass on to someone else. In that situation, an individual may choose to use a trust. A trust holds property on someone else’s behalf. In wills, trusts are commonly established for minor children, so that someone else can manage the children’s money until they reach a certain age when their parents believe they will be able to manage it. Trusts are also commonly used in second marriage situations – a person may want to allow a spouse to have access to certain property while the spouse is living, but for that property to ultimately pass to the decedent’s children. Trusts can help accomplish that goal.
- List funeral wishes. Although this is also done in other documents too, a will commonly states whether an individual wants to be buried or cremated, and where the body should be buried or the ashes should be spread. Sometimes, wills contain other information about funeral wishes too like where it should take place and even what readings might be recited.
- Tax planning. Wills can be great tools for tax planning in order to avoid federal or state estate or inheritance taxes. This can sometimes be accomplished by setting up various trusts.
- Naming executors and trustees. A will usually states who will be the executor of an estate, which is the person who will carry out a deceased individual’s wishes listed in the will. Wills can also name the trustee of any trusts established in a will, which is the person who will be in charge of carrying out the instructions of the trusts.
While wills can serve as powerful estate planning tools, they are only effective if they are properly drafted to suit the needs of each individual. An estate planning attorney can review all your options with you and establish a will in a manner that ensures your wishes will be honored.