A Complete Guide To Estate Planning
One might think of real estate and the housing market when they hear about estate planning. However, it is actually the process of planning and assigning your “estate” to successors and descendants. In this case, estate refers to all of someone’s assets, liquid or physical.
When choosing how to assign your assets to heirs, it is essential to consider whether a will or a trust is the better option. It might seem silly to consider these things when you are only 30 and have plenty of time left. It might also seem irrelevant if you don’t have much other than a house and some scattered investments. However, it’s never too early to begin.
What Is A Will?
Most people have seen enough mystery movies to have some archetypal idea of what a will is. You make a will, maybe someone notarizes it, and then all your family is angry because someone else is getting what they want. It’s deeper than that, however.
The biggest thing that is different is the probate process. When someone passes, the items noted in the will do not simply pass to the designated heirs. Instead, an appointed executor must file for probate. This is where a probate court distributes the items and collects on debts.
The process can take years to settle. It is also public, so any nosy family can file disputes and drag the process out while trying to lay claim to various assets. This also invokes court fees paid from the estate, meaning less is given to heirs.
If the will does not line up with other documents, it can cause problems. Heirs listed in wills that do not line up with other assets listing beneficiaries in the contract will also cause problems. Wills also don’t cover joint assets.
What Is A Trust?
A trust is similar to a will because it protects your assets. A revocable trust, often called a living trust, also allows for change and flexibility like a will. Because a trust is a whole legal structure and not just a designation, it bypasses the probate process.
When you set up a trust, you will appoint a trustee (that’s you or a joint owner like a spouse) to manage the trust. You also name a successor who will take over the trust if you can no longer manage it.
While they protect your privacy and are more airtight regarding the law, they also have flaws. Trusts are more costly and time-consuming than wills. If you believe you will pass soon, a trust might not be ready before your time. It can also be expensive because of the cost of retitling assets in the trust’s name.
Is A Trust Or A Will Better?
While many people have turned towards trusts in modern times, it is more a matter of “and” rather than “or.” A will is a good initial plan. It covers any unexpected advent that could result in your passing and is a fill-in before a trust is ready. A will is also acceptable if it covers simple items that don’t require much effort to pass on.
A trust is suitable for expensive and valuable items like houses, significant investments, and other assets. They also create a bulletproof system that avoids probate. Trust is best for an incapacitated person, too. If the trustee is in a coma or mentally incapable, a successor or joint trustee can step in to manage the assets. Anyone with conditions or a family history of certain conditions should consider a trust.
Despite the complexity and burden of estate planning, it is something best-taken care of early. Life is unexpected, so having a will gives people peace of mind. And when there’s time, setting up a trust guarantees the right people receive what they are entitled to get.