Wills & Trusts
A will is a document that tells legal authorities what should happen to your possessions when you die. It’s one of the first steps of estate planning. It can be any length, and in most states, it must be witnessed by others who agree that you have the mental capacity to make your own choices.
If you have minor children, it designates their legal guardian (with whom your children would live), and sometimes a financial guardian, who’d make sure that your assets are distributed to your kids appropriately through their minor years and in full when they reach legal age or another designated date. After you pass away, a will must be verified as valid in “probate court,” which is a court of law that deals specifically with wills and estates.
What Is a Trust?
A trust is akin to a mini corporation through which property intended for the benefit of one party, the “beneficiary,” is held by another party, the “trustee.” The trustee and the beneficiary can also be the same person; sometimes there are many beneficiaries, and sometimes there are many trustees.
Trusts allow your assets and possessions to skip the probate court process and go directly to intended recipients, saving time and money spent on court and attorney fees.
Why Wills and Trusts Matter
Unfortunately a large number of American adults, with and without children do not have wills. Without a will, you take a risk. Your money, house, car, boat, other material items and minor children land in limbo–with no clear recipient, beneficiary or guardian to receive them.
A trust is geared toward individuals with a positive net worth and assets, such as cars, houses, savings accounts and a substantial amount of life insurance. If you don’t have much in the way of assets, a trust may not be necessary.
How Do Wills and Trusts Work?
A will can be one sentence or several pages long. The writer’s death activates the document. The title must read “Last Will and Testament of …,” and the document must state that the writer not only has the mental capacity to make decisions, but is also of legal age.
Two disinterested parties must then sign it, and a notary public must verify the writer’s identity and signature. The will can also be handwritten, with no witnesses necessary. However, a handwritten will is only valid in some states, and it can be easily contested. Text added after the signature is made isn’t recognized as part of the will.
Following the writer’s death, the will goes into probate court, and a person is appointed a personal representative in charge of making sure that the will is carried out. If a representative is not named in the will itself, the court will appoint one.
A trust is a legal entity created by a document that states the contents of the trust are being held for another party. The “trustee” manages the assets in the trust, and distributes it. The “beneficiary” is the person to whom the property will go. The terms of the trust outline when the property will be distributed, who it will go to, who is in charge of the trust and how the property can be used. Only earnings may be taken out of the trust, while the original amount given to the trust must remain intact.
There are many different types of trusts, and each one has its own rules about when ownership can be transferred and to whom. The most common type, a revocable trust, is one in which the ”grantor” (the people/person who give(s) the property to the trust) is also the trustee and beneficiary. This type of setup allows people who have money in non-retirement accounts that lack “transfer on death” instructions to avoid the time and cost spent in probate. Additionally, the amount in assets and the name of the beneficiary would not be made public, which would occur in probate.
A trust created while the grantor is still alive is called a living trust; some living trusts are revocable and others irrevocable, depending on how the trust is made, and what restrictions it puts on the assets in the trust. A trust created upon the grantor’s death via a will is known as a testamentary trust and is irrevocable. Upon the death of the grantor, a trustee takes actions specified by the terms of the trust.
What You Need to Do Now
- Don’t procrastinate.
Unless you have a crystal ball, you just never know when death will occur.
- Determine which type of document best suits your situation.
You’re the only one who knows the extent of your assets, but if you have minor children, you must get a will.
- Keep your will or trust current.
Life is fluid. As you increase assets, and expand your family, your will or trust should be updated to meet your changing needs. For example, wills and trusts should be revised following unexpected events, such as a divorce or the death of a spouse or a child. A substantial inheritance can also inspire a revision to your will or trust.
- Let someone know where you keep your documents.
A family member, relative or trusted friend should be able to easily find your documents at the time of your death to prevent any confusion.