When it comes to estate planning, every case is as diverse and unique as the people involved. Luckily, modern estate planning offers a wide array of tools to accommodate virtually anybody’s goals. What is right for you will largely depend on the nature of your estate and those who you want to benefit from it.
Many clients come to us feeling torn between setting up a trust or relying solely on a will, but there is no need to choose between one or the other; a single estate planning can, and often does, include both a will and a trust (or multiple trusts).
Creating a Will
As most people know, a will is a written document that communicates how a person wants their property distributed after they pass away. It can be as simple or complex as the testator (the person who makes the will) wants it to be.
If a person dies without a will—“intestate” is the legal term for this—the state laws of intestacy provide a generic hierarchy for transferring their property. For example, if the person had a spouse, all the property goes to him or her; if not, it will be distributed equally among their children; if there are no children, then to the decedent’s parents, etc.
Of course, many people want a more custom-tailored estate plan than is offered by the laws of intestacy. For example, they may wish to leave specific property to specific people or leave property to a spouse for the rest of their life (called a life estate) before passing it on to their children. A will can accomplish all this and more when drafted by an experienced attorney. It can even be used to create a trust.
Different Types of Trusts
A trust is a legal arrangement whereby property is held on behalf of and for the benefit of another. Here’s an example: a person owns an apartment building; she dies, and by the terms of her will, if she dies before her child reaches the age of 21, the apartment building will be held in a trust until that time. The trust is its own legal entity, and all of the assets are managed by a trustee. The trustee has a legal obligation to maintain the building, pay taxes, etc. (paid for by the trust); depending on the terms of the trust, the monthly rental income may be paid out to the child, invested in a college fund, or whatever else the parent wished.
There are quite a few types of trusts, but they are separated into two main categories: revocable and irrevocable trusts. As the names imply, a revocable trust can be revoked by the trustor after its creation, while an irrevocable trust cannot. A trust established by a will is by definition an irrevocable trust, as the trustor is no longer around to revoke it. As to so-called “living trusts,” there are many reasons a person might create one or choose one type over another. For example, they may be looking to minimize their tax exposure or ensure that a child with diminished capabilities is cared for.
Identifying the right kind of trust and drafting a document that withstands legal scrutiny can be a complicated process. Therefore, you should consult an estate planning attorney.
Finding the Right Balance
With so many options available, estate planning involves choosing the right combination to suit your needs. The best way to do this is to sit down with an attorney who understands this area of law, identify your goals, and craft a plan accordingly. Take the first step today and contact our office to schedule a consultation.