Estate planning takes away some of the stress and worries your family will have after you have passed. All the right assets will be distributed to the appropriate beneficiaries, the courts will not have to intervene and prolong the process, and any questions regarding funeral arrangements and other details will already be answered. The basic components of estate planning consist of a will and a trust.
But, what are they and do you need them?
A Last Will and Testament
A will is a legal document that divides most of your money and your property after you have passed. If you have minor children, it is within this document that you designate a guardian should you and your partner pass at the same time. A will is also where you name an administer for your estate.
When Can You Make A Will?
Generally, you can draw up a will when you reach 18 years of age, but you can make a will under 18 years if:
- you are in the military.
- you are married.
- you have been legally emancipated.
The first line of a will states that you must “[be] of competent and sound mind,” which means that you must understand:
- what a will is and that you are making one.
- your relationship to everyone mentioned in the will
- the type of properties your own and how you plan to have them distributed.
When to Make Changes to A Will
When you want to make minor edits to your will, such as change or remove beneficiaries, you will create a codicil, which acts as an amendment. Like a will, it is signed and witnessed.
A trust is a legal agreement that is split between a minimum of three parties: the trust maker, the trustee, and the beneficiaries. The trust maker draws up the trust agreement and handles the transfer of asset ownership to the trust. The trustee remains in charge of the assets on behalf of the beneficiaries until they choose to use the assets.
Trusts come in different forms and provide a variety of benefits, such as:
- Revocable living trusts. This is the most common trust where the trust maker is also the trustee and beneficiary. The trust maker can also name other beneficiaries to inherit the trust after their death. The main reasons for this trust are to secure a plan should the trust maker develop a mental illness, as well as protect the assets in the trust from probate.
- Irrevocable living trusts. As the name suggests, once the trust maker puts assets into the trust, they cannot be taken back, and the trust itself cannot be dissolved. The trust is handed over to the trustee who manages the assets for the beneficiaries to have at a later date.
- Testamentary trusts. Similar to a will, this trust comes into effect after the testator’s death, and it can be changed before the testator’s death. A testator is a person who makes a will. This trust is created as a component of the probate process.
Why Set Up A Trust?
Creating a revocable living trust is sometimes a wiser choice compared to making a will because you have better control over your assets, who will get them, and how they will be handled.
An irrevocable living trust provides estate tax benefits and, most importantly, protects assets from creditors and lawsuits. Because the assets were transferred to the trust before the look-back period, they will come in handy for Medicaid eligibility.
If you’re ready for advanced estate planning, get in touch with us.
TPI Group is specialized in estate planning, accounting, and other financial services to simplify your life and protect your family’s future. Our professionals will walk you through the process and are experienced with assisting high-income individuals and companies in multiple industries. Contact us today.