Wills and Trusts
Having an attorney draft a will for you is not particularly difficult or expensive. However, thinking about your mortality and making decisions about your wishes in the event of your death can be very difficult. Tragic, unexpected events can occur at any age, and it is advisable for all adults, particularly those with children, to have a will.
A will is a necessary component of an estate plan. It is a formal document containing your instructions for the distribution of your property to the persons you have chosen. Without a valid will, state laws known as "intestacy statutes" dictate who will receive your assets. The persons who would receive your property under the intestacy laws may not be the same persons you would have chosen had you made a will.
In a will you name an executor, the person who is responsible for handling your estate. Even if you do not have a large estate, a simple appointment of an executor in your will can make the administration of your estate less expensive and more efficient. The executor will gather your assets, pay debts and final expenses, hire any necessary professional for things like tax returns, and make certain filings with the probate court. Ultimately they will distribute the balance of your assets as you have directed in the will.
Another important reason to have a will is to name who should be the guardian of your minor children in the unlikely event of an untimely death. While a difficult thought to contemplate, it is better to decide who you would want to care for your children rather than leave that decision to be made under the distressing circumstances of an untimely death and possible conflicts among family members. Through your will, you can establish a guardian for your minor children and ensure that financial resources are properly managed and prudently distributed to them (or to others on their behalf) at appropriate ages and in appropriate amounts.
If your circumstances, goals, or plans change, your will may be revoked or changed. A periodic review of your will and any other aspect of your estate plan is a good idea. Some life events can change or even possibly invalidate your will. If an event such as marriage, re-marriage or divorce occurs, you should review your will with your attorney.
Trusts are useful mechanisms for managing and distributing property rather than giving property to a beneficiary outright. Trusts may be created during your lifetime or may be created after your death through your will. A trust creator (the "settlor" or "grantor") creates the trust, usually transfers assets to the trust, appoints a trustee to manage the trust and its assets, and designates the beneficiaries of the trust. The trustee has a legal responsibility to manage the assets of the trust for the benefit of the beneficiaries.
Trusts can have many uses in estate planning, since they can provide much more flexibility than an outright gift of property. Below are brief descriptions of some different types of trusts that can be used in estate plans:
Revocable Living Trust: A Revocable Living Trust is established by the settlor while the settlor is living. During the settlor's life, the settlor often acts as the trustee of the trust and is the beneficiary of the trust as well, retaining complete control over the trust and the trust assets. The settlor names in the trust agreement who should succeed him as trustee when he dies, and who the beneficiaries of the trust will be. This effectively allows the ownership of the beneficial interest in the trust to transfer to the new beneficiaries upon the settlor's death without the necessity of a probate proceeding or administration of the estate, as would have been the case had the assets passed to the beneficiaries by a gift made in a will.
If properly done, this type of trust gives detailed instructions to the trustee for the distribution of assets to loved ones in well-planned increments and under prudent circumstances. The greatest benefit of the trust is derived when the trust is "fully funded", meaning that all of the settlor's assets were legally titled in the name of the trustee of the trust by the time of the settlor's death. As a back-up measure, it is advisable for the settlor of the trust to also execute a will that "pours over" into the trust any assets that may not have been titled in the name of the trustee at the time of death.
Family and Marital Trusts: These trusts are created under the provisions of a Living Trust or in the provisions of a Will and may be appropriate where the value of the combined estates of a married couple could result in imposition of an estate tax upon the death of the second spouse to die. To achieve the estate tax minimizing goal, two trusts are created upon the first spouse's death. First is a Marital Trust which is created for the sole benefit of the surviving spouse. Second is what is often referred to as the Family (or Credit Shelter) Trust, which can be for the benefit of the spouse, children, and/or any other beneficiaries that the grantor/testator has designated. There are variations of this type of trust that may be useful, depending upon a client's circumstances and estate planning objectives.
When considering such trusts, a client will be asked to consider the prospect of remarriage by the surviving spouse. For example, if Mr. and Mrs. Jones intend to leave their entire respective estates to each other, and then the surviving spouse remarries, the possibility exists that the remarriage could end in divorce and the assets could be subject to division in that divorce proceeding. If that scenario is a concern, certain re-marriage protections in the Family and Marital Trusts need to be considered.
Irrevocable Trust: An irrevocable trust is a trust that cannot be modified once created. When a settlor makes a gift to the trustee he relinquishes control of the asset and the gift is irrevocable. This type of trust provides clients an additional means of transferring wealth and saving on estate taxes.
Irrevocable Life Insurance Trust: Also known as an "ILIT", this irrevocable trust is created for the purpose of having the trustee own a life insurance policy on the life of the settlor, with the settlor's loved ones as the ultimate beneficiaries. Properly drafted and administered, the ILIT provides a mechanism for the policy proceeds to be excluded from the gross estate of the decedent for estate tax purposes, and to be distributed to beneficiaries prudently.
Special Needs Trust: A special needs trust, also known as a supplemental needs trust, is a trust whose beneficiary is an individual who has a disability, and who may be eligible for governmental assistance in the form of Supplemental Security Income, subsidized housing, Medicaid, etc. Because these programs are generally needs-based, eligibility to receive benefits is dependent on falling below certain wealth thresholds. Assets held in a Special Needs Trust for the benefit of a person with a disability (if set up properly) will not be counted towards determining that person's total assets, so they will not impact eligibility for governmental aid.
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