Six Things You Should Know About Wills and Trusts
Drawing up your Will and setting up trust funds is part of your estate planning, one you must not ignore. Wills and trusts are essential elements of sound estate planning regardless of wealth.
One of the most common misconceptions regarding Wills is that you write them right before you pass away. You can write your Will at any stage of life, provided that you are of a sound mind while writing the Will, ensuring that you are free of anyone’s influence while writing it, and making sure to have witnesses. Getting your witnesses to sign an affidavit further solidifies the validity of your Will.
You can rewrite your Will multiple times owing to changing circumstances. However, the last Will you write before you die is the only one that the court and the State will consider, rendering all previous Wills null and void.
On the other hand, trusts are independent entities set up to secure future generations. You can use it to transfer assets to your beneficiaries within and after your life. There are different types of trusts depending on several factors. Some give equal access to assets inside a trust to all beneficiaries, while others set it up to give away to charities.
Let us look at some more probing facts regarding Wills and trusts and their importance.
1. Trusts Provide Control over Estate Planning
Setting up an online living trust gives you control over your assets even if you become incapacitated. It would not require a guardian, even if you could not make decisions on your own.
There is a testamentary trust that only activates after you die, giving your selected executor the right to transfer assets in and out of the trust according to the terms and conditions laid down by you. Therefore, even after you die, the executor cannot distribute assets of their own accord. Instead, they are bound to follow your instructions, terms, and conditions.
In addition, you can add whatever assets you want within your trust if you set up a revocable trust within your lifetime. You can revoke or dissolve it whenever you want. However, if you plan to keep it in place, you can appoint a trustee to hold and manage assets if you cannot do so by yourself.
Nevertheless, a revocable trust will become irrevocable after death since the grantor is no longer present to revoke it.
You cannot dissolve an irrevocable trust after transferring assets into it. However, they allow for the best estate tax benefit. This way, you can also keep control over your estate taxes.
2. Be Specific in Your Will
You must pay attention to detail when writing a Will. First, analyze what assets you have. Then, ensure your account for each one of them. You can include personal items like jewelry, furniture, or other accessories to give to someone. If you leave something out, the court will decide what to do with it.
Secondly, you must give something to each of your beneficiaries. Ideally, ensure you distribute your wealth among your children equally to avoid conflict later on. For example, if you are giving a piece of furniture to one child, make sure to give something of equal value to the rest.
If you have minors, be sure to name a guardian for them who will also be responsible for holding assets on their behalf until they come of age. If you do not have a designated guardian in your Will, the court will appoint one for them.
Always name an executor of your Will. Someone who will be in charge of distributing your wealth according to your Will. Ensure that you inform them that you appointed them as the executor so they can understand their responsibilities.
You must be mindful of all these things if you want to retain control over your belongings.
3. You can set up Trusts for Certain Purposes
There are different kinds of trusts that you can set up to fulfill specific purposes. Trusts are subject to federal laws that determine which are recognizable in your State. You may consult your lawyer regarding this.
You can set up a spendthrift trust for beneficiaries who are irresponsible with money. You can set up a withdrawal limit for them and only let them take out as much as required. For example, suppose your child is in college. In that case, they can only take out the amount to cover their rent, food, travel, and other necessary expenses.
A special needs trust help provide for beneficiaries with special needs. In this way, you can sustain them without depending on government benefits.
A life insurance trust helps transfer the grantor’s life insurance to the beneficiaries. You can also use it to avoid State taxes, as it is irrevocable.
4. You can Disinherit Certain Relatives in Your Will
If you wish, you can specify in your Will which relatives you want to disinherit. This ensures they will not receive any assets or properties in your name. Your current beneficiaries also cannot transfer your assets to disinherited relatives.
5. Skip the Probate when Setting Up Trusts
You can skip the probate by setting up a living trust. Probate is a period required by law during which the court assesses the validity of your Will after you pass away. It can take a whole year. During this time, no beneficiary can touch any of your assets. However, they do receive a monthly allowance for their sustenance.
In the case of trusts, there is no need for probate since you were alive while setting it up. Your beneficiaries can access your assets as soon as you set them up without needing probate. It saves time and costs.
6. Include a Residuary Clause in Your Will
When writing a Will, you must first use your assets to pay off all your debts. The assets left after paying off your dues are residuary estate. You must specify who receives the residuary estate among your beneficiaries. You can distribute it equally among your beneficiaries or give it to charity.
If you do not mention who receives the residuary estate, the court will distribute it according to your State law. Therefore, always include a residuary clause in your Will.
Conclusion
You must have a sound knowledge of Wills and trusts for effective estate planning. Both are different yet important if you want to retain control over your assets.
You can write a Will or set up a trust at any time. However, the sooner you begin, the more efficiently you manage your assets and properties.
You must be specific in your Will and always include a residuary clause. You can also disinherit a relative if you want in your Will.
Setting up living trusts provide control over your assets, and you can set them up for specific purposes. The advantage of trust over Will is that there is no probate to determine the trust’s validity.
Note these facts when setting up trusts and writing your Will.