When people think of estate planning, the first legal tools that likely come to mind are the will and the trust. Today we discuss the differences between them and the roles each can play in estate planning.
Last will and testament
A will directs how property is distributed to others after death. When a person dies without a will, his or her estate will pass according to state intestacy laws that provide a formula for distribution of assets to surviving family members, sometimes distantly related. A person may not want the heirs named in the intestacy laws to receive their property, but a will allows a person to leave money and property to the people they choose.
An important power in a will is to name a legal guardian for surviving minor children should a parent die prematurely. In addition, the testator designates an executor in the will, who may be a relative or friend, or a professional or corporate executor. The executor wraps up the testator’s affairs after death by probating the will. In the probate process, the executor will inventory the assets, pay debts, and distribute the property.
Trusts in estate planning
The trust creates an alternate way to transfer money and assets to another. A trust is a legal agreement between the person creating the trust (the trustor, settlor, or grantor) and the person managing the property held in the trust (the trustee) for the benefit of a third party (the beneficiary). An individual or institutional trustee holds and manages the trust money or property according to the terms of the trust, which may allow them to transfer trust assets to the named third-party beneficiaries according to the grantor’s terms in the trust agreement.
Trusts are either “inter vivos,” meaning created during the grantor’s lifetime, or “testamentary,” meaning created in a will to spring into existence after probate to receive property from the grantor’s estate for trustee management.
While trusts are commonly associated with wealthy individuals and their efforts to minimize tax liability, trusts have a variety of purposes not associated with wealth and tax planning. For instance, trusts can protect assets from creditors and bypass the ever-so-public probate process. A trust is also a great way to manage assets for a beneficiary that has special needs or addiction issues.
A variety of trust types are available in Kentucky – most of which are legally or structurally complex. A lawyer can assess the trust type that will most likely help reach the client’s goals.
Every family is unique – different dynamics, relationships, values, histories, priorities, etc. Many families have property that has meaning or sentimental value, such as jewelry, art, or real estate passed down through generations. At Lockaby PLLC, we get to know each client’s concerns and specific goals for how their property will pass to others after death. An estate planning attorney will consider using a will, trust, and/or other important legal tools to help a client preserve their personal legacy in a way that reflects their wishes.