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Will or Trust?

Having trouble deciding whether a will or a revocable living trust is right for you? Read more below or take this quick quiz to find out.

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WHAT A WILL DOES

A will is a legal document that outlines your final wishes in regards to how your assets are distributed to your surviving family members or friends you select. Here are some of the things having a will in place allows you to do:

 

1. Choose how assets are divided upon your death: A will's primary purpose is to allow you to designate how you want your assets divided among your surviving loved ones upon your death. If you die without a will, the laws of intestate succession in North Carolina governs how your assets are distributed, which may or may not be in line with your wishes. (9 out of 10 times it is not!)

 

However, a will only allows you to provide for the distribution of certain types of assets—namely, a will only covers assets owned solely in your name. Other types of assets, such as those with a beneficiary designation and assets co-owned by you with others, are not affected by your will. (Beware: common mistake!)

 

2. Name an executor: In your will, you can name the person you want to serve as your executor, sometimes called a “personal representative.” Following your death, your executor is responsible for wrapping up your final affairs. This includes numerous responsibilities such as filing your will with the county probate court (in every county you own real estate!), locating and managing all of your assets, paying off any debts you have outstanding, filing and paying your final income taxes, and finally, distributing your remaining assets to your named beneficiaries. All of these filings are public record and must be made according to designated timelines.

 

3. Name guardians for your minor children: If you are the parent of minor children, it is possible to name legal guardians for your children in your will. However, naming guardians for your children in your will alone can be risky, and doing so may even leave your kids vulnerable to being taken into the care of strangers if something happens to you. And this is true even if you’ve worked with another lawyer to create your will, because most lawyers haven’t studied and been trained on what’s necessary for ensuring the well-being and care of minor children.

 

Fortunately, whether you’ve named guardians for your kids in your will or have yet to take any action at all, you’ve come to the right place. Estate Planning NC offers a comprehensive system known as the Minor Child Protection package, which is an optional add-on for parents of minors. This website also offers a stand alone guardian nomination FREE because we believe every parent needs this and cost should not be prohibitive. Start your FREE guardian nomination here.

 

4. Serve as a backup for a living trust: Because it is possible that the legal title to every single one of your assets was not transferred into a revocable living trust before your death, most trusts are combined with what’s known as a “pour-over” will. This type of will serves as a backup to a living trust, so all assets not held by the trust upon your death are transferred, or “poured,” into your trust through the probate process.

WHAT A WILL DOES NOT DO

While a will is a necessary part of most estate plans, your will is typically a very small part of a comprehensive estate plan. To demonstrate, here are the things you should not expect your will to accomplish:

 

1. Keep your family out of court: Following your death, in order for assets in your will to be transferred to your beneficiaries, the will must pass through the court process known as probate. During probate, the court oversees the will’s administration, ensuring your assets are distributed according to your wishes, with automatic supervision to handle any disputes.

 

Like most court proceedings, probate can be time-consuming, costly, and open to the public. Moreover, during probate, there’s also the chance that one of your family members might contest your will, especially if you have disinherited someone or plan to leave significantly more money to one relative than to others. Even if those contests don’t succeed, such court fights will only increase the time, expense, and strife your family has to endure.

 

Bottom line: If your estate plan consists of a will alone, you are guaranteeing your family will have to go to court if you become incapacitated or when you die. Fortunately, it’s easy to ensure your loved ones can avoid probate using a revocable living trust. 

 

2. Pass on certain types of assets: Since a will only covers assets solely owned in your name, there are several types of assets that your will has no effect on, including the following:

 

  • Assets with a right of survivorship: Property held in joint tenancy, tenancy by the entirety, and community property with the right of survivorship, bypass your will. These types of assets automatically pass to the surviving co-owner(s) when you die.

  • Assets with a designated beneficiary: When you die, assets with a designated beneficiary pass directly to the individual, organization, or institution you designated as beneficiary, without the need for any additional planning. Common assets with beneficiary designations include retirement accounts, IRAs, 401(k)s, and pensions; life insurance or annuity proceeds; payable-on-death bank accounts; and transfer-on-death property, such as bonds, stocks, vehicles, and real estate.

  • Assets held in a trust: Assets held by a trust automatically pass to the named beneficiary upon your death or incapacity, so these assets cannot be passed in your will. This includes assets held by both revocable living trusts and irrevocable trusts.

 

3. Protect you from incapacity: Because a will only goes into effect when you die, it offers no protection if you become incapacitated and are no longer able to make decisions about your financial, legal, and healthcare needs. If you do become incapacitated, your family will have to petition the court to appoint a guardian to handle your affairs, which can be costly, time-consuming, and traumatic for your loved ones. There are annual accountings that must be made on your behalf showing every dime in and out of your bank account. Care about your privacy? Make sure your estate plan prevents the need for guardianship at all costs!

 

WHAT A TRUST DOES

When you hear the words, “trust fund,” do you conjure up images of stately mansions and party yachts? A trust fund - or trust - is actually a great estate planning tool for many people with a wide range of incomes who want to accomplish a specific purpose with their money.

 

Simply put, a trust is just a vehicle used to transfer assets. Attorneys often use the analogy of a suitcase. Think of it as putting all your assets in the suitcase. During your life you still take things out, put things in or throw it all away. But if you become incapacitated or die, then the person you name as successor trustee simply picks up the suitcase and manages the assets. Total privacy. Assets are managed according to the instructions you declare in the trust. There is no court. No public record.  

 

Trusts are especially useful for parents of minor children, as well as those who wish to spare their beneficiaries the hassle of going to Court in the event of their incapacity or death. And why would you want to keep your family out of court (known as avoiding probate)?

Perhaps you’d like to keep the details of the assets you are leaving to your heirs private. A will must go through probate to go into effect. Probate makes your estate, and information about your assets and heirs, a matter of public record. A trust is a private document and distributes assets upon your death without the need for probate, which can also tie up assets for a long period of time.

 

The court process can take longer than is necessary and keep your family from getting access to your assets as quickly as they want or need them.

 

If you have minor children, you need to create a trust in order to leave your assets to them since minors cannot inherit directly. You will want to name a trustee to manage those assets for your children. Even if your children are adults, a trust can help protect assets you leave for them from creditors, legal judgments, divorce, or even their poor money management habits.

 

You can even establish a trust for yourself in case you become incapacitated and cannot manage your own finances at some future time. The trust assets are managed by a successor trustee, which avoids the need for a court-appointed guardian if you become incapacitated.

 

Trusts are also wonderful tools for those who are members of a blended family. If you are remarried and have children from a previous marriage, you can provide for your current spouse while ensuring your assets pass to your children from another marriage via a by-pass trust.

A revocable living trust uses your social security number, not a separate TIN; therefore, there is no separate tax return needed. It allows you to keep your assets organized in a way that someone can easily take over when necessary, but the way they take over has already been instructed by you.

Still not sure which is right for you? Schedule a Consultation with Estate Planning NC to discuss your questions and concerns. If you complete the questionnaire 48 hours prior to your consultation time, the $350 fee is waived.

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