Here is a Fox Business article with good points about why you need a Will, but it fails to mention that having a Will instead of a comprehensive estate plan means your family may be forced to go through probate in California. Probate, if it can be avoided, should be avoided by having a Living Trust drafted to address the concerns mentioned in this article. The trust takes the place of the Will and avoids probate.Tweet
Every new project has to begin somewhere, and most newcomers to estate planning choose to begin with a will and a trust. This is because wills and trusts form the foundation for how your property will be distributed, how your heirs will be cared for, and how the probate process and estate taxes will be handled.
A will is the most well-known of all estate planning documents, it is generally the simplest and easiest to create (although some wills can be very lengthy and complex), and in most states a will can contain within it instructions for peripheral topics such as guardianship of minor children or the final disposition of your remains.
But everybody knows that the main purpose of a will is usually to dispose of your assets and effects. In its most basic form, a will should include these important parts:
* The testator’s (creator’s) name and crucial information
* Nomination of an executor to carry out the wishes of the testator
* The naming of the beneficiaries
* Instructions as to how the estate should be distributed to the beneficiaries
* Signature of the testator and the date signed
* Signature of witnesses and the date signed
As mentioned above, this is a will in its most basic form, but in fact most wills will also contain instructions for probate, instructions regarding the payment of debts and taxes, the names of any organizations to receive charitable distributions, a mention of relatives who may purposefully NOT have been named, and more.
Because a will can be so basic, many people believe that a will can easily be created on one’s own, without the help of an estate planning professional; in fact, there are plenty of companies who offer “Do It Yourself” will creation software for a fee. However, it is important to understand that while a will itself can be very simple; the federal and state tax and probate laws are rarely so. If you feel your estate is small and your wishes are modest then by all means keep your will short and sweet as well. However, we strongly urge ALL of our readers (even those with small and simple estates) to have an estate planning professional at least review your will and advise you as to its validity before you sign it and tuck it away.
In addition to a will many families will choose to also create a trust. We’ve said it before on our blog and we’ll say it again: It doesn’t matter whether you’re a billionaire business executive or a teacher with a modest salary, it doesn’t matter whether you’re the patriarch of a large family or a stay-at-home mom of a newborn, a revocable living trust may be exactly what your family needs to protect their assets and their best interests. This is because a trust is probably the most comprehensive and versatile tool in your estate plan, and is a key part of helping you accomplish your goals.
There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. Logically enough, an irrevocable trust cannot be changed once it has been signed. The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.
The specifics of your trust will vary greatly depending on what you hope to accomplish. Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to the guardians as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.
A trust, much more than a simple will, allows the grantor far greater control over their assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.
Serving as executor or trustee of a will or a trust is an honor… but it’s also a job—a BIG job—and not one to be taken lightly. The role of executor or trustee can be one of great financial power, but it carries with it a heavy fiduciary obligation. Fiduciary obligation means that an executor or trustee must act in the best interests of the beneficiaries; it means that although the executor or trustee may be doing all the work, he or she may see very little return on that work, which is all for the benefit of the named beneficiaries.
If you have been nominated (or are currently serving) as an executor or trustee there are a few things you’ll want to remember as you go about your duties:
1. The will or trust is your guide, the mission statement by which you should operate; read and understand the document completely, and have an attorney help you, if necessary.
2. You need to be pro-active—to an extent. If you are managing a large amount of money or assets over a period of time it is probably not in the best interests of the beneficiary to let those funds sit in a savings account. Create (with an advisor, if necessary) a financial plan for the trust assets.
3. Although you may be handling the estate assets, you should not have any personal financial dealings with the trust. You should under no circumstances borrow from or lend money to the trust. Keep your finances separate!
4. Communication and transparency is key! Keep detailed records of all of your actions and transactions regarding the will or trust, and send regular reports to the beneficiaries. Regular communication prevents unhappy surprises or angry lawsuits in the future.
5. You don’t have to do it alone. If you were picked as a trustee because of your financial knowledge and experience—great! But if you were picked because you are the oldest, or the most responsible, or the favorite you may feel overwhelmed by the job ahead of you. Don’t try to muddle through alone, get the help and support of an experienced attorney or advisor.
When people think about estate planning they generally think about inheritance, or taxes, or even guardianship—but rarely are the words “executor” or “agent” the first ones that come to mind. And yet, choosing your executor or your agent is one of the most important decisions you’ll ever make.
Your executor is the person who carries out the instructions in your will. You may spend hours (sometimes months or even years) agonizing over inheritance plans and making decisions; but in the end, when the time comes for all of those decisions to be implemented, you’re not going to be around. If there are any questions to be answered or clarifications to be made they’re going to fall to your executor.
Your agent is the person who—depending on whether the document is a health care directive or a financial power of attorney—will make your important financial or health care decisions when you are unable. This person is your proxy during your life, signing checks on your behalf or talking to doctors about your treatment.
Considering all of this, it is understandable why so many people have trouble naming an agent or executor. It’s not easy to choose your own replacement, so to speak. But the most difficult decisions are often the most important. If you are a parent of more than one child then you know about the sibling fights that can erupt seemingly out of nowhere, even in loving and agreeable families. This is especially true when there is any uncertainty about what mom or dad’s true wishes were. The right agent or executor can relieve much of that uncertainty.
So how do you choose the right agent or executor?
First of all, think it through carefully. Choose someone reliable, whose decisions you trust. You’ll want someone who’s careful; and you’ll want to choose someone who isn’t already overloaded, because they’ll need to have time to do a thorough job. Choose someone who knows you and who knows your family; a familiar face will be comforting in hard times. On the other hand, nominating a financial institution rather than a personal friend can work out well under the right circumstances, but research your choices carefully.
If there isn’t one clear choice you may decide to nominate two people to make decisions together. This can be a good alternative, but it can also be a recipe for disaster, so be sure to build in some protections: name an uneven number of agents or executors to prevent tie-decisions, or nominate a mediator or tie-breaker who can step in to prevent serious disagreements from having to be decided in court.
If you have a favorite cause or charity you have probably considered leaving some money to that charity in your will. Perhaps you’ve even taken it a step further and toyed with the idea of specifying that the executor of your will set up a trust in the name of your favorite charity, rather than simply giving a one-time gift.
If you have ever considered either of these options you may want to ask your estate planner about setting up a Charitable Remainder Trust, which, according to this Elder Law Answers article, not only supports your favorite charity after your death, it also benefits you during your lifetime.
“A charitable remainder trust is an irrevocable trust that provides you (and possibly your spouse) with income for life. You place assets into the trust and during your lifetime you receive a set percentage from the trust. When you die, the remainder in the trust goes to the charity (or charities) of your choice.”
The altruistic reasons for setting up a charitable remainder trust are obvious, but here are some other advantages you may not have considered:
* Reduction of your taxable income
* Charitable tax deduction at the time you fund the trust
* Diversification of assets
* Income from the trust during your lifetime
In addition to all of these financial advantages, setting up a charitable remainder trust provides you with the opportunity to leave a family legacy and impress your values upon your children and grandchildren.
Please remember that charitable remainder trusts are irrevocable trusts, which means once they’re done they can’t be undone, so it’s not something to take lightly. If you are interested in creating a charitable remainder trust, call our office or talk about it with your own attorney before you take action.