“The first casualty of war is truth.” Sherwood Eddy and Kirby Page, The Abolition of War. Probate and estate planning are difficult enough without having to wade through the flotsam of advertising materials for promotional seminars, do-it-yourself forms, and product salesmen. Here is a bit of unvarnished truth.
If you have a trust, then you still need a will, but if you have a will, then you may not need a trust.
A will gives your directions for how you want your assets and liabilities handled when you die. It becomes effective when the court admits it to probate and appoints an executor. That gives your executor the power to pay debts, handle lawsuits, gather assets and make distributions to beneficiaries. In short, your will gives someone the power to act that you had when you were alive.
Incidentally, a power of attorney is not a substitute for a will, because a power of attorney becomes ineffective when you die.
A trust is merely a letter of instructions to a trustee on how to manage assets that you have transferred to the trustee. A trust can be effective during your lifetime and after your death. A trustee has no power over assets that you have not transferred to him. Unlike a will, a trust only controls the property that you specifically transfer to it. A trust is a contract, while a will is your ultimate mop-up document.
Trusts come in two flavors: revocable and irrevocable. The revocable trust is a look-through document – the assets are not protected from your creditors and they are taxed as if you still own them. An irrevocable trust is a stand-alone arrangement – your creditors usually cannot reach the assets and the trust has its own tax identification number.
In both types of trusts, the trustee manages the assets while you are alive and continues to manage them after you die. Trust assets are usually not part of your probate estate, so they will not be controlled by your will.
A common problem with trusts is that very few people who have a trust actually fund all of their assets into it. Sometimes that is on purpose, and sometimes that is by mistake. Properly funding a trust can be time-consuming and difficult. Every asset that is funded into a trust needs some type of transfer document. Sometimes the assets aren’t even known – an escheated account, an inheritance, a forgotten mineral interest. Those unfunded assets have to be handled when you die, and that is where your will becomes vital.
If a trust is an optional add-on planning tool, then why would you ever need one? Common reasons are to manage property in another state, to implement a plan that controls assets far beyond your death, to name a corporate fiduciary and, for those individuals with a very large estate, to engage in estate tax planning.
Everyone should have a will. Few people should have a trust. Seek expert advice before you put a trust in place.
Hammerle Finley Law Firm. Give us a call. We can help.
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The information contained in this article is general information only and does not constitute legal advice.