Why do you need a Will or Trust?
No Will or Trust? It is important to use estate planning tools so that your family does not have to go to court when you pass away. By drafting a will and a trust your family can completely avoid any court intervention. If you die without a Trust the state will decide what happens to your property through a process called Probate. Your property will be distributed by the court to your spouse and/or children or your closest relative or it may be given to the state. The court will also decide who will care for minor children if the other parent is unavailable. Without a will, the surviving partner of an unmarried couple will receive nothing unless it is in one of the few states that allow registered domestic partners to inherit like spouses.
Probate: Probate is a court supervised process paying debts and distributing property after death. This process is costly and time consuming for the beneficiaries. It can take months and costs thousands of dollars. This process can be avoided by obtaining a Living Trust.
Will: Having a Will is a good start but a Will still must go through the probate process in the state where the person died. The court will decide if it is a valid Will and how to distribute the property. In a Will you can leave property, possessions and investments to whomever you would like and you can also name a guardian for your minor children and designate a person to manage property that is left for the children. If you only have a will, your beneficiaries will receive everything when pass away. This may not be the best option for your children.
Living Trust: A Living Trust is a legal document which you create during your lifetime to transfer your assets into the ownership of the trust. This is a way to avoid probate after your death. As the trustee of the trust you maintain control over the assets. Upon your death the successor trustee distributes the assets to the beneficiaries so there are no lawyer or court fees to pay thus avoiding probate. You can specifically choose how you assets will be distributed over time.
With a Living Trust you will also get three other important documents:
1) Pour-over Will
2) Health Care Directive
3) Springing Durable Power of Attorney
Pour-over Will: In your Estate Planning documents along with your Living Trust you will have a pour-over Will which covers any property that was not properly titled in the trust. This ensures that if something was left out like a newly bought car it will be put into the trust through the pour-over Will without going through the probate process. This is also where you designate a guardian for minor children.
Health Care Directive: This is a legal instruction regarding your preferences for medical care if you are unable to make medical decisions for yourself. It is important to have a Health Care Directive so that if you are incapacitated upon entering the hospital you are able to receive the care and treatment that you want and are not stuck in an undesireable situation because you are unable to make a decision.
Springing durable power of Attorney: This document allows you to choose someone to make decisions regarding property, investments and finances for you if you become incapacitated.
Why is the living trust replacing the will?
1) to avoide probate;
2) to avoid guardianship;
3) to avoid joint ownership; and
4) to avoid estate taxes.
1) Probate: When there’s a will, there’s a probate. The living trust avoids probate.” A will is designed to be used in a probate. Probate is a court proceeding used to transfer assets owned by someone who has died. Only the executor, when authroized by the court, can sign off on assets held in the name of the deceased. Probate can be costly and time-consuming, but the biggest problem is that your loved ones will have to deal with courts and attorneys. The living trust avoids probate because assets are held in the trust, which lives on after the creator dies.
2) Guardianship: Guardianship is like a probate every year for the rest of your life.” A will does nothing to prevent guardianship. When you become incapactiated without the proper documents, a guardian must be appointed to make business and health decisions for you. Guardianship can be costly, time-consuming and humiliating. The living trust avoids guardianship by providing that a successor trustee steps in to make such decisions for the trust assets. Health Care Documents and Durable Powers of Attorney complete the protection for guardianship.
3) Joint Ownership: Joint ownership problems can be worse than probate.” Joint Ownership can avoid probate, but often results in worse problems. Simultaneous death of joint owners can result in a probate. Joint ownership can also mean loss of control. A joint owner’s creditors may be able to take the assets. Most important, joint ownership may mean higher income taxes, gift taxes and estate taxes.
4)Estate Taxes: The AB Living trust can double your ‘magic number’.” This is the “applicable exemption amount” from federal estate taxes and is currently $5,430,000. Federal estate taxes are taxes on your assets after the magic number and currently start at 40%! When a person dies and leaves it all to their significant other, their magic number dies with them. But with an AB or ABC Living Trust, you can preserve the magic number of the person who dies, add it to the magic number of the survivor, and thereby double this magic number.