If you’ve been around long enough, there’s a good chance you’ve heard the old saying: “you can’t take it with you when you go!” While this is an old-time statement that’s been around for years, it has withstood the test of time and remains true. The fact remains, you can’t take it with you when you go. What you can do is control what happens to your financial assets when you are gone.
As one of the most popular wealth management firms in Florida and California, we constantly see the same problem when helping clients navigate their loved one’s estate. Failure to plan what happens to your financial assets when you are gone can lead to a huge crisis for your family members when managing your estate. Unfortunately, this sometimes means a reduction in benefits to your beneficiaries.
Why? Let’s take a closer look at this common problem and jump into the difference between wills and trusts when it comes to estate planning.
Planning Your Estate
When it comes to your financial assets
, it’s imperative that you do some sort of estate planning before you pass. It’s not usually the possessions and money passed from one spouse to another that become an issue, although they can be. Fortunately, the marital deduction provision of the United States Estate and Gift Tax Law allows this process to be implemented fairly easily and without the surviving spouse left to incur liabilities.
The biggest issues we see individuals face when it comes to estate planning occurs when passing possessions and money from one generation to another. The process is much more involved and the process needs to be seamless. Let’s take a closer look at two of the most common ways individuals transfer their assets to subsequent generations: wills vs. trusts.
What Is a Will?
A will is a document that states exactly how you want your affairs handles and your assets distributed after you die. It is a legally enforceable document and one of the most important parts of estate planning. There are several cases where a will is essential to the future of those you love if you were to die unexpectedly.
For those with minor children, a will can appoint guardianship of your children in the event both parents become deceased. If you don’t use a will to appoint guardianship, your surviving family will need to turn to the court system to have a guardian appointed by the courts. This can be a major problem for families. The biggest issue is that the court might not appoint a person you would have chosen to be entrusted with your children if something happened to you.
Guardianship isn’t the only thing to consider when you have minor children. You also need to plan how you will pass your financial assets to your children. Having a will gives you the legal power to make those decisions beyond the grave. When a will is in place, the court will make sure that your money goes out exactly as you wish. It will ensure that your children are financially sound in the event that something happens to you. You can address who you want to control the finances, how you want them spent, and how your children can be taken care of when you have a will in place.
Now that you understand the importance of a will, let’s cover a few legal aspects before you have one drafted.
- Always seek legal counsel when you create your will. Legal counsel can ensure that your will is legally drafted the right way. In some cases, wills have been void because they weren’t drafted the right way legally. Avoid this type of devastation for your family by discussing with your lawyer.
- Consider the fees for probate court. In most cases, your estate will need to go through probate court to distribute your assets. If you have the money to put aside, try to cover the costs of probate ahead of time.
- Discuss your will with your family. Let them know where a copy of your will can be found. Provide a copy for anyone who needs to be aware of the fact that you have a will.
A trust is different than a will. It is a fiduciary relationship that gives another party authority to handle your assets on behalf of the beneficiary you choose. It serves as another method of estate transfer and is usually set up by parents or grandparents to be awarded to the next generation.
Trusts fall into two categories: living and testamentary. Just like a will, a trust requires you to transfer property after your death to the loved ones of your choice. The name living trust comes from the fact that the person setting up the trust is alive when they do so. It can be changed at any point by the trustor before their death.
The main difference between a trust and a will is that you avoid the need to go through probate court with a trust. You save on attorney and court fees, and your property is immediately awarded to the beneficiary of your trust. Because of these factors, a trust is often the better choice for estate transfers.
Trips from Wealth Management Firms
When it comes to estate planning, wills and trusts are the most popular and sound option to ensure your belongings are left to your loved ones in the manner in which you wish them to be. Here are some tips when considering a will vs. a trust.
- Regardless of which option you choose, you should always seek the advice of a qualified professional to ensure your documents are legally binding and written in line with your wishes.
- Trusts are often a better option because they give your family more control over your assets and they don’t require probate court and the costs associated with it. They are, however, more expensive because of the planning involved.
- If you don’t set one of these options in place, the court system for the state you live in will have control over your assets. This means all the decisions for guardianship or financial asset distribution will be made by the court.
If you’re worried about the planning phase, speak with your financial advisor to see which option will best suit your needs.