Wills & Trusts: Demystifying these essential estate planning tools

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The Will

Most people are familiar with a “Last Will and Testament,” a document stating the desired distribution of the author (in legal parlance, the “testator”) in the event of his or her death. A properly drafted Will instructs the judge in a probate proceeding how to distribute the testator’s assets. A Will can appoint Personal Representatives (more commonly known as “executors”), name guardians for children, or set up contingent trusts for children.

The Revocable Living Trust

A Revocable Living Trust is a tool established by an individual (known as the “Settlor” of the trust) which benefits the Settlor during his or her life and provides instruction to a trustee detailing the desired distribution of trust assets at the Settlor’s death. A trust of this type can be created by one or more persons and is one of many forms of trusts available at law. It is a widespread device in estate planning due to its flexibility, efficiency, and the ease of administration which results. A Revocable Living Trust is recommended for many reasons. Some common circumstances include: single people, blended families, cabin owners,  and those with complex business interests and holdings.

A trust can hold assets in much the same way an individual is capable of holding assets; thus, tax implications during the Settlor’s life from establishing a trust are slight. In a Revocable Living Trust, the Settlor appoints a Trustee who has discretion to make distributions of the Trust property. The Settlor typically serves as the Trustee of a living trust until he or she dies or becomes incapacitated, at which point a successor Trustee steps in to manage the assets. It is common for spouses to establish Joint Revocable Living Trusts, in which both serve as Trustees who can act independently.

Comparing the two:

 

Do I need both?

It may be appropriate in certain circumstances to have a Will without a Trust. If you do establish a Living Trust, however, it is still necessary to have a Will. Because property not “captured” by the Trust at the time of death must pass through the probate process, a properly drafted Will works in conjunction with the Trust and instructs any such property back into the Trust. This is referred to as a “Pour-Over Will,” because it pours the property into the Trust. In the end, the terms of the Trust control the property even though it was not held by the Trust at the time of death. A probate proceeding is likely still necessary in this scenario, but the terms of the Trust reign supreme.

A holistic estate plan will commonly involve creating both a Will and Trust, plus a few other documents that will help loved ones step in when necessary. These documents include a Power of Attorney and Health Care Directive, which authorize your loved ones to act on your behalf during your lifetime.

The attorneys in our office believe your estate plan should be designed to reflect your values, reduce tax consequences, empower you to make educated decisions, and equip your loved ones for the future. Contact us to update your existing estate plan, or to begin planning.

The diagram above shows how a Revocable Living Trust operates. Keep in mind this trust works largely the same if there are two settlors (for example, a joint trust between spouses).