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Myth: All I Need is a Will

Looking into estate planning leaves many with information overload.

You’ve probably heard that “everybody” needs a will. 

You may have even heard that “estate planning” is important for your family. 

But what does that even mean?  Is “estate planning” the same as getting a will?  Or is there more to it than that?  Googling the answer may help you a little, but often that leaves you with more questions than answers.  You need someone to explain this to you without all the legal jargon and opaque technical language. 

You’re in the right place.  I’m about lift the fog on two of the most commonly misunderstood estate planning tools: trusts and wills.  Is one better than the other?  Can you, and should you, have both?  Let’s get into it.

Will:  Your family is headed to court

Most people have at least a general idea of what a will is.  A will is a legal document that lays out your wishes for how your assets should be distributed when you die. 

But most people don’t know more than that.  And that’s the kicker.  It’s critical to understand exactly what and how all that happens when you have a will. 

When you die, all of your assets are immediately frozen by law.  That means that, in most cases, they cannot be transferred or sold until they are unfrozen

For example, say you and your spouse own your home and both of you are on the deed.  The deed says that you own the title so that when the first of you dies, your spouse is 100% owner of the home.  When the first of you dies, no problem because the survivor of you has full rights to the home.

But what happens when your spouse dies? 

You may intend for your house to go to your kids.  But guess what . . . your kids do not automatically get your houseBy law, it’s frozen.  The only way for them to get it unfrozen is to go to court (i.e. probate court).

This is true of almost all of your assets unless you have some other arrangement like joint accounts or payable on death designations (but there are downsides to those arrangements as well.  We’ll get into that in a future post). 

The process of getting your assets unfrozen in probate court involves the court validating your will and approving an executor and distribution plan. For your loved ones, this process is often a very frustrating, confusing, and expensive ordeal. 

“So wait a minute, Len.  Are you saying I should not have a will?” you may be thinking.

No, that’s not what I’m saying.  Having a will is miles better than having no will at all.  A will at least gives the court a roadmap as to your wishes.  But the discussion shouldn’t end there.

Living Trust:  Your Family’s Way Out of Court

Enter the trust.  Now, a key thing to understand about trusts is that there is not just one type of trust. 

Trusts are kind of like cars.  There are many different types and which one is right for you will depend on what you’re looking for. 

Sure, there are trusts for the ultra-wealthy with tens of millions of dollars in net worth.  That’s not what I’m talking about here.

There is a specific type of trust that is relevant to just about everyone:  the living trust. 

A living trust is a legal document that you create during your lifetime to manage and protect your assets.  Once the living trust is created, you transfer your property and assets to the trust for the trust to hold, and you can serve as the trustee during your lifetime.  After you pass away, the trust assets are distributed to your loved ones according to your wishes, all without having to go to court (i.e. probate). 

But the key with a living trust (and this is critical) is to set it up properly.  If it isn’t done right, it’s worthless.  Actually, it’s worse than worthless because you’ve invested thousands of dollars into setting up something that doesn’t work for your family when they need it most.  I’ll get into common mistakes I see in setting up these trusts in another post.  For now, let’s go into how a living trust can help you and your family in ways that a will cannot.

What are some reasons why a living trust may be right for you?

1. Avoiding probate

Unlike a will, a living trust avoids your family having to go to court to receive your assets after you die.  There can be substantial costs to this court process (called probate).  For example, on a modest estate valued at $500,000, probate court could cost your family $10,000 to $25,000.  With an estate value of $1M, you could be looking at probate costs of $20,000 to $50,000 or more.  These costs can be insult to injury when your family is already dealing with the emotional loss of your passing, only to find out the probate process now wants its piece.  And this is all before paying taxes!

2.Maintaining Control of Your Assets

With a living trust, you maintain control of your assets during your lifetime, even though they are owned by the trust.  You can be trustee of your own trust and you can manage and use the assets however you want.  You can change the terms of the trust or even terminate it if you ever change your mind.  With a will, your assets are frozen once you die and your loved ones are forced to go to court to unlock them.

3.Readiness for Incapacity

Another benefit of a living trust is that it can provide for your care and management of your assets if you ever become incapacitated.  For example, if you end up in the hospital due to illness and you’re unable to manage your affairs, your successor trustee (usually your spouse or another trusted family member or friend) can step in and manage your assets on your behalf.  This type of planning is not possible with a will alone.

4. Privacy Protection

A living trust is a private instrument.  Unlike a will, it never needs to be submitted to a court or put in public record.  Your financial affairs, including your assets and beneficiaries stay confidential.  With a will, once your loved ones submit it to the court, it becomes public record and anyone searching for it can access it – your financial affairs become an open book. 

What’s right for you?

Whether you choose a will or living trust, it crucial you get it done right.  Seemingly minor technical errors can completely invalidate your plan.  I’ve seen too many estate plans fail because they were either a DIY/online-legal form job or because they were prepared by a law firm inexperienced in estate planning laws.  Make sure you get the right guidance by discussing this decision with your estate planning attorney, CPA, and financial advisor.

Get clear on how to protect your loved ones

There’s no one-size-fits-all plan.  You need a plan customized to your family and your particular desires and intentions for your family when you’re no longer around.  Where do you start?  Take the first step and talk to us:  Get scheduled now