A will, or “last will and testament” is a legal document that is used to transfer your belongings, money or other “assets’ to the people you name in it. A will can serve more than just that purpose, however.
A will can also be used to appoint the guardians for your minor children and to tell the court and your family whom you would like to take care of your estate or act as “executor” when you die.
A will can also be used to set up trusts for the people you would like to leave stocks, bonds, money market accounts, savings or other assets to.
- Why a will is important: If you do not appoint a guardian and your spouse does not survive you then your surviving family will have to go to probate court and get a guardian appointed for your children. This is important to note because the person appointed may not necessarily be the same person you would like to raise your child or children.
A trust is another way to transfer your “assets” (money, IRA, 401K, jewelry, artwork, collection, vehicles, etc.) to the people after you die. Typically, a trust does not go through probate. One person, say a grandparent, may create a trust in order to leave specific items or accounts to his or her grandchildren. After his or her death, these assets will then be transferred by the person the maker of trust appoints to carry out his or her wishes. This person is called a trustee.
The trustee makes sure that all medical or other bills and debts are paid, that the funeral notice and arrangements are taken care of and that the named beneficiaries get what has been left to them in the trust. With IRAs and 401ks there is almost always a named beneficiary, but these people can also be named in the trust.
Types of trusts
There are many types of trusts but they fall into basically two categories:
- Living
- Testamentary
A trust made for the primary purpose of avoiding probate court is called a living revocable trust. It is called living because it is made while the person is still alive. It is revocable because it can be changed during that person’s lifetime.
A trust created in addendum to a will is called a testamentary trust.
Trusts typically do not go through the court and so there are no court, attorney or probate fees.
4 things a trust must have
To be valid, a trust must have:
- A maker (the trustor)
- Someone appointed to carry out the terms of the trust (the trustee)
- Someone named if the first trustee cannot carry out his or her duties (the successor trustee)
- At least one named beneficiary to the trust (the person or people who are named to receive money or other assets)
Who needs a trust?
Trusts are not just for the very rich or the very old. Because trusts are not expensive or time consuming to create, trusts are actually quite common for people of moderate means.
Both trusts and wills offer benefits not covered in this post. If you have questions about your specific will or trust then speak with a trusted estate planning attorney.