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For some, estate planning can be as simple as having a will (last will and testament) that determines how their estate / property is distributed after they pass. Although this may be fine for some, it can complicate the situation for heirs and make for a potentially lengthy distribution of assets. Trusts have become a very popular way for many to handle their estate since it avoids the probate process and can clarify the distribution process, helping to avoid disputes among family members.
What is a will?
A will or Last Will and Testament, is a legal document that provides instructions for what should happen to a person’s assets after his or her death. This term “last will and testament” is commonly used to mean the same thing as a “will”, but to be exact, a last will and testament refers to the most recent version of a will. A will is commonly used to distribute a personal property, real estate, investments or business interests. It may also be used to appoint legal guardians. If a person dies without a will, they are said to be intestate, and state intestacy laws govern the distribution of the property of the person who passed.
What is a trust?
A trust is a legal arrangement that allows your assets to be held and managed by a third party. This third party is known as a Trustee. The Trustee is the person or group of people that are responsible for ensuring that your estate is handled in the manner specified in the trust. There are several purposes for a trust, but one of the more common reasons people choose to use them is to make sure their assets are distributed how they wish and avoiding the need for Probate.
What is an estate plan and estate planning?
An estate plan or estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. Typically an estate plan attempts to preserve as much wealth as possible for the beneficiaries involved. Some of the benefits of estate planning or having an estate plan include:
- The naming of a guardian for the care of any non adult children or children with special needs
- Specifies instructions for your care and financial affairs if you become incapacitated before death
- The minimization of taxes, court costs, and legal fees related to the distribution of your assets.
Generally, when a person passes without a will or trust, their money and property will be distributed according to state law. Essentially the state will determine who gets the property based on their relationship to the person who passed. Some property, such as insurance policy proceeds, joint bank accounts and retirement accounts will be distributed to the person you designated as the beneficiary of that specific account. In most cases, the company providing the account allows you to specify a beneficiary. In the case that it is a joint account, the other person on the account with you usually gets the balance when you pass.
One way you can control the distribution of your property after death is through a will. But, even though your will can provide for information on how to distribute your assets, your beneficiaries or a named executor will still need to go through a court process called probate to distribute your property. You can also arrange for the distribution of your property through a living trust.
For additional information, click on one of the following Estate Planning topics or view our Trust & Estate Articles located here.