By Brittany Littleton
People don’t have to be wealthy to give serious thought to their estate plan. If you own a home, car or bank account, you have an estate. In last month’s column, I discussed the perils of transferring your assets to your loved ones as your primary method of estate planning. This month I want to discuss two alternatives: a last will and testament and a revocable living trust.
If you die without an estate plan, the state provides for the management and distribution of your estate under “intestate” succession laws. These default rules may not reflect your wishes. For example, a spouse is not the sole heir of your estate if you have children or surviving parents, and a spouse’s share will vary depending on whether children are joint or your family is blended. Creating a proper will or trust will replace the statutory defaults so that your wishes are known and followed. But how do you know which tool is right for you?
Think of a will as a legally enforceable letter explaining to your family and a probate judge who receives your stuff when you’re gone and who is charge of overseeing your instructions. Wills are relatively simple to have prepared and require no action on your part after you execute them unless your wishes change, but will-based estate plans are often complicated by probate.
Probate is the process where a court reviews your will, determines its validity and supervises the executor in following your instructions. All “interested parties,” potential creditors of your estate and the general public must be given written notice of the court proceeding through a letter and publication in a newspaper. Probate is lengthy, public and costly. If a will is contested by an unhappy family member, the process can become very expensive and drag on for years before your heirs can have what is left of their inheritance.
A trust is a written document that provides for the management of your property while you are living – unlike a will, which only takes effect after your death. You usually act as your own trustee until you become incapacitated or die so you retain full control of your assets even though your trust owns them. If you are unable to manage your assets because of incapacity, a successor trustee of your choice can manage them for you without needing to ask the court to be your legal guardian. You also state in your trust how your assets should be distributed upon your death, and the distribution happens without court supervision or public notice. While trusts are more complicated documents than wills on the front end of your planning, they keep your personal affairs private and make your estate administration simpler; if you fund your trust properly, you will avoid guardianship court upon your incapacity and probate court upon your death. However, trusts aren’t simply about avoiding probate. You can design a trust to transfer assets to your heirs outright, or you can direct that assets be retained in trust and used for your heirs’ benefit for many years. Using a trust to provide ongoing financial support to your loved ones is especially useful if your intended heirs are minors, disabled or can benefit from asset or creditor protection or strategic tax planning.
If you decide to create a will or trust without the advice of an experienced estate planning attorney, be aware that certain requirements must be met for your will or trust to be legally enforceable. You must be an adult of “sound mind,” and the document must be prepared in perfect conformity with state law. These rules are for the protection of you and your heirs. If the legal technicalities are not strictly followed, a judge can declare your will or trust to be invalid – meaning intestate laws will apply regardless of what your document says.
Regardless of whether you are financially wealthy, you have a great deal to share with your loved ones. Next month, I will talk about ethical wills, which are a great way to pass on the wisdom that you have acquired and can be one of the most meaningful parts of your estate plan.
Brittany Littleton owns and operates Littleton Legal. Her practice focuses on business law, estate planning, elder law, trust administration and probate. She is a firm believer that clients are best served when their legal, financial and accounting advisors are working collaboratively to strategize and advocate on their behalf.
A Signature Partner with BA Seniors, Littleton will write a column each month covering issues such as how to avoid probate court, mistakes to avoid in leaving an inheritance or emergency decision documents every senior needs. If you have a question that you would like answered or a topic you would like to see covered, send your thoughts to Sean Simpson at firstname.lastname@example.org.