Creating an estate plan can protect your loved ones and establish your legacy, but who needs both a trust and a will?
With an estate plan, you can provide for your loved ones after your death, transferring to them such assets as your home, vehicle, bank accounts, and personal possessions, including sentimental items. An effective estate plan should make this process easy for your loved ones. An estate planning attorney can assist in structuring your plan to ensure your wishes are followed. They also are experienced in creating legal documents that will transfer your hard-earned wealth as seamlessly as possible to those you love.
This process can include establishing a will and, in some cases, a trust. While simple estate plans may just use a will, more complex plans may benefit from also employing a trust. Whether you need a trust in addition to a will depends on your circumstances, such as the size of your estate and your personal goals.
What Is a Will?
For many, making a will is a vital first step toward creating an estate plan. A will, or last will and testament, is a legal document that establishes who will receive your estate – everything you own – when you die. Your estate can include your home and other real estate, cars, savings, investment accounts, business interests, and personal belongings.
With a will, you can leave your estate to just one person or divide it among multiple beneficiaries. For example, someone with three children might wish to divide their estate between them, whereas another person might intend to leave everything to their spouse. Or perhaps you plan to leave your wealth to your favorite charitable organization. A will also allows you to name successor beneficiaries. These individuals will receive your money and property if your first beneficiaries pass away before you.
You can use your will to leave specific or sentimental items to certain individuals. For example, a grandmother might leave her favorite grandchild a piece of heirloom jewelry. Specific bequests can help your loved ones feel recognized and remembered.
In your will, you can also name guardians for minor children. In addition, your will allows you to appoint the person you would like to be in charge of winding down your affairs after you pass away, called an executor. The person you nominate to serve in this role will be responsible for locating and collecting all assets of your estate, paying final expenses and any debts, filing tax returns, and ensuring your assets are distributed as specified in your will. Your executor can be a family member, attorney, or other trusted individual.
Despite the many advantages of making a will, only a third of Americans have a will or other estate planning documents, according to Caring.com’s 2024 Wills and Estate Planning Study. When someone dies without a will, they pass away intestate. New York’s intestacy law – rather than the individual themselves – would then determine who inherits what the individual owned.
Understanding Trusts
A trust is a more complex and versatile legal arrangement that you can also use to pass your wealth on to your loved ones. A trust works by having an individual or entity, called the trustee, hold assets for the benefit of someone else, known as the beneficiary. The grantor, the person creating the trust, can tailor how they would like the assets in the trust to be distributed.
Avoiding Probate
Trusts are useful because they can help avoid probate – the often lengthy and costly legal process of administering an estate after someone dies. Probate can have numerous downsides for loved ones. They may face potentially high legal fees or a delay in receiving their inheritance. The probate process opens the door to challenges as well. Disgruntled family members may try to claim that the will is invalid in an effort to receive a greater portion of the estate.
Probate also raises privacy concerns, as wills become public record; trusts, in contrast, typically do not.
Other estate planning tools can also help avoid probate. Payable on death accounts or designated beneficiaries also allow for pre-probate wealth transfers.
Asset Protection
A type of irrevocable trust known as a Medicaid Asset Protection Trust (MAPT) can help to protect assets and help qualify for Medicaid.
Individuals intending to use Medicaid to pay for long-term care may place into a MAPT certain assets that would otherwise disqualify them from Medicaid. Once Medicaid’s look-back period has elapsed, the assets transferred to the MAPT are protected. Since a MAPT is irrevocable, the grantor no longer directly controls the assets, but maintains certain rights, especially if a primary residence is placed in the MAPT. As the grantor can choose their beneficiaries, they can transfer and benefit from their wealth without first exhausting their assets to go on Medicaid.
Other Uses for Trusts
Trusts come in many types, serving different purposes. Some are designed to help reduce estate taxes. Others protect public benefits for a loved one with a disability.
Individuals with children might use a trust to provide the next generation with financial stability. With a trust, parents can impose safeguards to keep their children from spending their entire inheritance at once. Another tool, known as a testamentary trust, helps keep trust assets safe from creditors if, for instance, the grantor’s heirs are in debt.
Deciding Whether to Have Both a Will and a Trust
Creating a will is a fundamental part of estate planning. Most people should have this document in place, even if they also use a trust, because it acts as a safeguard. Those with more complex needs, blended families, or grantors with a beneficiary who has special needs may wish to incorporate a trust into their estate plans. Finally, many seniors want to protect their home and other assets from the exorbitant cost of long term care and create an irrevocable MAPT. This can also help them avoid probate.
Work With an Estate Planning Attorney
Each person’s situation is unique. Whether you need both a trust and a will depends on your family’s personal circumstances and financial goals. The experienced estate planning attorneys at Kurre Schneps can help you create a customized legacy plan, which may include executing a will, trust, as well as other estate planning documents.
