Wills and trusts have specific and quite different benefits for estate planning purposes. Each state has specific laws and regulations governing these legal documents. You can have both a will and a trust; however, the information in each should compliment the other. As a standalone, it is not accurate to say one is better than the other. The better choice for you, or a blend of both documents, depends on your assets and life circumstances. Begin by assessing your situation, goals, and needs, and understanding what wills and trusts do to guide your decision making. Then, along with an attorney, you will be able to identify the solution that best suits and protects your family.
At its most basic level, a will allows you to appoint an executor for your estate, name guardians for your children and pets, designate where your assets go, and specify final wishes and arrangements. A will is only enacted upon your death. It has some limitations regarding the distribution of assets, and wills are also subject to a probate process (which occurs in court and is overseen by a judge) and, as such, are part of public records.
Types of wills:
The last will and testament designates a person’s final wishes about bank accounts, real estate, personal property, and who should inherit these items. A personal will outlines how to distribute possessions, whether to another person, a group, or donate them to charity. It also deems responsibility to others for custody of dependents and management of accounts and other interests. Accounts can include digital assets with a tangible or monetary value associated with it, such as funds in a PayPal account.
A pour-over will ensures an individual’s remaining assets will automatically transfer to a previously established trust upon their death. This type of will always accompanies a trust.
A living will or advance directive specifies the type of medical care that an individual prefers if they cannot communicate their wishes.
A joint will and mutual will is meant for a married couple to ensure that their property is disposed of in an identical manner. A mirror will is two separate but identical wills, which may or may not also be mutual wills.
A holographic or handwritten will is valid in about half of the states and must meet the specific state’s requirements. Authentication of this will type for acceptance to the probate process also varies by state. There is always the possibility that a court will not accept a holographic will. Even if you have limited assets, your best strategy is to have your will professionally documented by an attorney. A video of your final wishes does not create a valid will.
Trusts are somewhat more complicated than wills, and the many different trust types can greatly benefit your estate and beneficiaries. Generally, a trust provides for the distribution and management of your assets during your lifetime and after death. Trusts can apply to any asset you hold inside the trust and offer more control over when and how your assets are distributed. There are many different trust forms and types, far more than wills.
However, the creation of a trust is only the beginning of the process. You must fund your trust by legally transferring assets into it, making the trust the owner of those assets. This process makes creating a trust a bit more complicated to set up; however, a trust is often enacted to minimize or completely avoid probate, thus keeping personal records private. Avoiding probate is a huge advantage for some people and often justifies the additional complex legal work of setting up a trust. There are nearly as many types of trusts as issues to address in your estate planning, and each offers different protections. However, trusts generally fall into three basic categories.
Basic trust types:
A Revocable Asset Protection Trust (RAPT) is, by far, the most commonly implemented trust type. The person who creates and funds the trust is known as the grantor and will typically act as the directing trustee during their lifetime. The grantor may undo the trust, change its terms, and move property and assets in and out of the trust’s ownership as they deem desirable. Revocable living trusts are designed to switch to an irrevocable trust upon the death of the grantor. It is very important for your attorney to include language in the Trust to protect from the Three Headed Monster of Probate Court, Estate “death” taxes, and Financial Creditors and Predators. Pro-tip – these protections are not automatic your Trust needs the specific magic or proper language to get these important protections.
An Irrevocable Medicaid Asset Protection Trust (MAPT) is legally binding on its date of designation and allows very few provisions for change. The trust grantor funds the irrevocable living trust with property and assets and typically for Nursing Home or Medicaid protections most folks put their home into this MAPT, and the trust property is then under the care and control of the individual the grantor names as trustee. The grantor cannot change their mind and “undo” the trust. There are unique tax implications and other benefits to an irrevocable trust, including protecting a person’s home and savings from the high costs of long term care and the $15,000.00 per month nursing home. These benefits can make giving up control to a suitabe child as your trustee worthwhile because the average stay in a nursing home is about three years or the private pay costs of $540,000.00 if you do not protect. Don’t forget this type of planning has to be done 5 years in advance because of the 5 year look-back period.
An Irrevocable Veterans Asset Protection Trust (MAPT) this Trust would be appropriate for veterans to protect their assets to qualify for VA Aid and Attendance benefits. Aid and Attendance benefits are for veterans or who are 1. 65 years old or older; 2. served for at least 90 days of active duty; 3. served at least one day during war time; 4. fail at least two Activities of daily living; 5. qualify financially.
A testamentary trust is a provision within a will, appointing a trustee to manage the deceased’s assets. This trust is often used when the beneficiaries are minor children or someone who is receiving public benefits. This trust type is also used to reduce estate tax liabilities and ensure professional asset management. A testamentary trust is not a living trust. It only exists upon the death of the testator (the writer of the will). The executor of the deceased’s estate would follow the terms of the trust (called administering the trust) as part of the probate process.
Things to put into a trust include but are not limited to:
Stocks, bonds, mutual funds
Money market accounts
Patents, copyrights, and royalty contracts
House and other real estate
Business interests and notes payable to you
Jewelry and precious metals
Works of art or other valuable collections
Qualified Retirement Accounts, 401k’s, 403 B’s, IRA’s only if done properly with a qualifed elder law attorney.
The many benefits that proper estate planning with wills and trusts can provide to your family are worth some thoughtful contemplation, legal counsel, and properly drafted documents. The investmet is well worth it. We would be happy to meet with you and discuss which options are best for your particular situation.
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Patrick Kelleher is an author and Estate Planning & Elder Law attorney and founder of the elder law care learning center in Hanover, Massachusetts. Patrick has been teaching free educational workshops for over 10 years at his learning center and surrounding communities. Learn more at elderlawcare.com or follow Patrick Kelleher on Facebook because you will learn a lot! Offices in Hanover and Quincy. You can find Patrick’s new book “How to Avoid the Four Headed Monster” of Estate Planning & Elder Law on Amazon at https://www.amazon.com/How-Avoid-Four-Headed-Monster-Financial-ebook/dp/B084MB96SK
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