Estate Planning for Legalease members NJ

  Estate Planning for Legalease members NJ 

Whether You Need a Living Trust or a Will is Not Such an Easy Question to Answer.

We’ve heard these adult words thrown around of what we should have, especially once children pop into the picture. But how many of us know their actual definitions, when to use them, and if we need all of them or just some? Below is meant to offer a simple explanation. Please consult your legal advisor for more information.

Let’s start with definitions.

A Will is a legal document that tells the state how you want your property/assets distributed upon your passing. It can also name a guardian for your child/children. Without a Will, these decisions are left to the state, and can cost your family members time, money and unnecessary stress. A Will is only active after your death. Think of it as the who, what and when…Who do you want getting your stuff, what are they getting, and when do you want them to have it?

A Living Will is very different from a Will. It communicates medical directions in the case that you are unable to express your own desires while still living. Other names that might be used for Living Will are “medical directive” or “advance healthcare directive.” 

A Trust is a legal relationship that transfers your assets while you are alive to a Trustee (second party), who then manages and distribute your assets according to your instructions to your selected beneficiaries. It is private and does not involve the state, thus, probate court is unnecessary. Once a Trust is written, it is active.

There are different kinds of trusts that can be setup by an individual. Some trusts are established for estate planning, or for tax planning, and some are for probate avoidance. Trusts are also a tool to ensure the Trustor’s assets are distributed to the people the Trustor desires (beneficiaries) but only when the beneficiary reaches a certain age, or a certain event happens in their lives. More information can be found around the components of trusts or samples of a trust by following this link HERE.

So, if both Wills and Trusts manage and distribute a person’s assets, what’s the difference between the two?

The biggest difference is that a Will distributes your assets only after you’re gone and through Probate Court. With Trusts, the Probate process is skipped, and your assets are managed and distributed while you are alive. A Will distributes everything in your estate, while a Trust only involves the specific property you transferred into the Trust.

When would setting up a Trust be more helpful than having a Will?

Whether you need a Will or a Trust depends upon several factors. Generally, those with estates (all of your assets) that are under $500,000 in total, will need to create a Will and that usually suffices.

Setting up a Trust can be more complex and expensive. However, it is private and does not involve public record, which appeals to many, and it allows you to get very specific, which is especially helpful to people with special circumstances.

One usually needs a trust when one has a substantial amount of assets and wants to either make sure the property is passed to their heirs in the most efficient manner, or with the least amount of taxes, or paying the lowest amount of probate fees in those states that set high probate fees. For example, California sets a percentage of the estate must be paid to those who administer the probate (distribute the assets for the deceased) and this fee can be very high if the deceased owned many assets.

In that case, or in the cases where the Trustor had a substantial amount of property, a Trust is often formed specifying the terms under which distributions are made, all with an eye toward avoiding high probate fees, in those states with high probate fees, or avoiding paying large estate tax amounts.

Trusts are also formed where there are children or adults who are named as beneficiaries under the trust, but might be in the Trustor’s opinion, too young or not able to manage the amount so money would be passed to them if the trustor died. A trust can be created that will pass on the assets at different stages of the beneficiaries’ lives.

Basically, when a person dies, they can no longer give away anything or talk to anyone about the assets the deceased owns. Probate is a legal proceeding whereby the judge oversees the process of distributing the deceased’s assets to make sure there is no fraud and the deceased written wishes are followed as best as the court can discern, since the deceased is no longer around to tell everyone how they want their estate distributed.

A Trust, often called a Living Trust, can help with the clear expression of the deceased assets, although they are not deceased when the Trust is created. Once a Trust is created, the Trust is an entity that “keeps on living” beyond the death of the Trustor [deceased]. Creating a Living Trust means assets transferred into and thus, owned by your trust, will bypass probate and flow to those you designated at your beneficiaries in the trust documents. A trust lets the Trustor have control over their assets long after they pass away.

Here are a couple of examples of how a trust can provide this control and protect one’s assets after their death:

Example 1: You and your significant other have two children, currently ages 5 and 2. You also have an investment account worth $2.5 million. You could put the account in your Living Trust so after you pass, you could specify the account would first go to your significant other and then to your kids if your other is no longer living. Because the children are young and would not know how to properly manage the money you passed onto them, maybe you want to give them each half of their share when they turn 25 and the rest at age 35 (or any age you specify). You might also give the person/people (called Trustees) responsible for taking care of your Living Trust some ability to make additional gifts of their share early in the event one child wanted to go to college, or one child became disabled.

Example 2: Assume the same example above but you and your spouse also have older children from previous marriages. Depending on your wishes and the dynamic of your family, you may not wish to give your spouse full control over your assets when you pass, because you fear your spouse may exclude your children from getting anything and favor their children. Here, a Living Trust could provide options for you to ensure all your children are taken care of.  

Trust planning can also reduce estate tax. Trust planning for estate purposes is complicated and may involve both a Will and Trust as well as other legal documents. You should consult an attorney for the specifics related to what actions you should take to protect yourself.

Simply put, most people need a will, but not everyone needs a trust. This is a general discussion about some complicated matters. It is for your convenience, but it is not intended to supply legal advice in any capacity. Always have an attorney review your particular situation before making any legal moves.

Source https://legalcorner.legaleaseplan.com/content/importance-estate-planning