|Posted by Mark Anderson on June 10, 2010 at 11:46 AM|
Do you need a will or a trust?
Almost everyone will need a will. There are some differences between a will and a trust. Whether or not you need a will or trust will depend upon your situation.
I. Do you need a Will?
A basic will provides for expenses, lists an executor or personal administrator, and provides for specific devises of real and personal property and the residuary of the probate. It will also appoint a guardian for minor children.
A will need to go through probate. A will is subject to claims of creditors and could be contested leading to additional costs. You also need to publish a notice to creditors in your local paper. This may be expensive depending upon your area. In addition, you will need to pay the personal representative and your attorney.
II. Do you need a Trust?
A trust does not need to go through probate. Probate is open record and requires notice, publication, and usually an administrator or executor, and attorney.
Some people do not want all their business made public. A trust provides for more privacy. Also, depending on your state, probate may be expensive. If probate in your state is more expensive than creating a trust, then you may wish to create a trust. However, you will need to pay an attorney to prepare a trust and transfer assets such as real estate in to the trust. You may want to contact a probate or trust attorney in your area to ask how much a trust would cost. Some lawyers will agree to a flat fee.
A trust is used to hold property in benefit for another individual. Say for instance you have children that are unable to handle money or a special needs child. In a trust you appoint a trustee to handle the money for this individual. There are typically conditions attached to any distribution of money.
Most people do not want their children getting a large amount of money or property when they turn 18 so they set up a distribution schedule or limit the distributions for certain items. For instance, a trust could contain provisions to only allow your children to receive 1/3 of their share of the trust property at age 18, 1/3 at age 24, and 1/3 at age 30. The trust could also contain provisions to control the distribution of money for education or medical emergencies.
III. Do you need both a Will and Trust?
Some people decide to have both a trust and a will. A person can create a revocable trust during their life time. If you own property in numerous states it is good idea to have the property owned by a revocable trust so you don’t need to open a probate in every state. This can lead to unnecessary expenses involved in opening a probate in every state.
Sometimes people forget to transfer all the property to the trust. So they create a pour over will. If something is forgotten, then the will pours over the left over items to the trust. Then, the trust would distribute the assets according to the terms of the trust. In these cases, the will has similar provisions to the trust. In addition some wills contain trusts called testamentary trust. These trusts are usually in your will and are fund upon death.
IV. If you are concerned with estate taxes you may need something besides a simple will or trust.
Estate taxes are really not a big issue for most people. In fact in 2010 there is no estate tax. If Congress does not act then the estate tax will come back in 2011. It will only apply to estates over $1.0 million. It is expected that Congress will enact a law to set the estate tax exemption at $3.5 million.
If you think this situation will apply to your estate, then there are credit shelter trusts, marital bypass trust, or QTIP trust that enables you to reduce estate taxes. Depending on your situation these trusts could be used to reduce your estate’s tax liability.
You could also create a charitable remainder trust. This type of trust allows you to retain the income during your life and upon you death, the remainder of the trust is distributed to charity.
There are also family limited partnerships (FLPs) that can be used to reduce the value of your estate by reducing the value of real estate placed in to FLPs. FLPs are usually used in a family owner ranch or farming operation where the value of the land has substantially appreciated over time. Other entities such as an LLC can also work for estate planning purposes if you operate a family business. If you are concerned about estate tax, then you should talk to an estate planning attorney.
As any estate plan depends upon your situation, it is a good idea to talk to an estate planning attorney in your state to see what will work for you.