Wills and Trusts
Wills and Trusts — Two Ways to Cross the Ts In Your Estate Plan
Having a will and perhaps a trust will give you control and make it easier manage your estate plan.
A will for your wishes
A will is your most basic estate-planning document. A will spells out your wishes, including who receives your assets. You can specify if the assets are distributed immediately or over a period of time through a trust. If you have minor children, you can name who becomes legal guardian for them. You can name the executor of your estate—the executor makes sure the will is executed according to your instructions. Remember, not all assets pass through the direction of the will. If the asset is owned jointly, has a named beneficiary, or has a “payable on death” title, the asset will not pass through the direction of the will.
If you die without a will, called dying intestate, the probate court will make decisions on the passing of your assets according to your home state’s laws. You lose control as the probate court determines who gets what. Anyone who owns anything of value should have a simple will. There are many books and online resources that show you how to draft a will for little to no cost. Unfortunately, a poorly written will could be challenged in court. Consider working with an estate attorney to make sure your wishes are clearly communicated.
In your property should you trust?
A trust is a legal entity that holds the title to property and assets that would otherwise be registered in your name such as your home, cars and financial accounts. A trust offers flexibility and protection. In a trust, you can give detailed conditions on how your assets are distributed, such as delaying an inheritance to a child until a specified age or until some goal is achieved, like graduating from college.
Many people set up what’s called a revocable living trust. Revocable means the trust can be changed by you at any time and you control all the assets in the trust. Because of this hands-on control, the IRS considers the trust assets to be part of your estate and subject to estate taxes. It is possible to structure a trust in a way that may reduce estate taxes.
Like a will, a trust is a legal document. It is a good idea to enlist the services of an attorney to draft the trust. Look for an attorney who specializes in the areas of probate, trusts and the estate planning laws for your state.
A living trust offers a couple of advantages:
- Probate avoidance — Probate is the court-supervised process of organizing and distributing assets according to a will. It can be time-consuming and typically costs three to ten percent of an estate’s value. Property held by a trust does not go through probate. You can include a provision called a pour-over will, which automatically transfers into the trust any assets that were not already there at the time of death. Without a pour-over will, any assets outside the trust will have to go through probate.
- Privacy — A living trust never becomes public record. Instructions are kept private so the world will not know that your 28-year old son has become a millionaire.
A word about taxes
Some states impose an inheritance tax on the people (beneficiaries) who receive assets through a will or trust. Often, spouses and children of the deceased may be taxed at a lower rate than other heirs. The federal government also imposes a tax on your entire estate value. For 2012, the first $5.12 million of an estate’s value is exempt from the estate tax, which means many families will not have to worry about paying federal estate taxes.
Take control of your estate
Your estate consists of everything you own. It includes your cash, investments, life insurance policies and personal property. Having a will and perhaps a living trust that are regularly updated will give you control and make it easier for those involved to manage your estate plan. Work with a local attorney to determine whether a will or a trust makes sense for you.
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Neither ING or its affiliated representatives offer legal or tax advice. Seek the advice of an attorney or tax advisor prior to making a tax-related or legal decision.