Some people confuse specific estate planning documents with the estate plan itself. A surprising number of people think that estate planning just involves writing out a last will.
While a last will does play an important role in your estate plan, it likely won’t be the only document you need to adequately protect yourself and your loved ones. People often also include trusts in their estate plans.
How do you determine whether you need a last will, a trust or both in your personal estate plan?
What does each document do?
A last will is a relatively simple document that provides information about your preferences regarding the disposition of your property at the time of your death and guardianship of any minor children that you have.
A trust can serve a crucial role in your estate plan and also benefit you while you are still alive. It changes ownership of assets out of your name and instead moves them to the trust, which gives you long-term control over those assets.
Do you have concerns about debts, medical coverage or taxes?
Trusts are particularly useful for those with financial concerns about what happens in their golden years or after their deaths. If you have limited resources and don’t want all of your assets to go to creditors or to repay Medicaid benefits, a trust could help. Trusts could also help those who worry that their estate will be worth enough to trigger estate taxes.
Do you have young children or a complicated family situation?
Trusts can be beneficial for children of any age. They can help prevent older children from wasting their inheritance or guardians who would control an inheritance from misappropriating it while your children are still young.
However, a last will is usually necessary if you have minor children or adult children with special needs who still remain dependent on you. You need a last will in order to name a guardian for your child.
There are benefits to having a last will and a trust
If you create a trust but no last will, any property you have that you don’t use to fund the trust will have to go through probate court for intestate succession proceedings. The courts will divide the property among your closest family members rather than distributing it to people according to your wishes.
If you only have a last will but no trust, your family members could fall victim to major mistakes in the management of their inheritance or possibly wind up with no inheritance due to creditor claims against the estate or other complications.
Thinking carefully about your circumstances can help you make the best possible decisions when planning your estate.