How a Will and Trust Factor Into Your Estate Planning

Why You Need A WillA Will/Trust Can Offer Peace of Mind

Definitions:

Guardianship:  “A legal guardian is a person who has the legal authority (and the corresponding duty) to care for the personal and property interests of another person…”  Wikipedia “Legal Guardian”

Heir:  A person (can be a relative or non-relative) who inherits some physical, real or monetary property under a Will.

Probate Attorney: An attorney who specializes in estate planning, Wills, Trusts, and Probate.

Trust:  A relationship whereby some type of property (usually money but can be financial assets like stocks, bonds and personal/real property like a home with real estate, a car, jewelry etc.) is held by one party (Trustee) for the benefit of another (beneficiary).

Will:  A Legal document which expresses a person’s desires for distribution of their assets, guardianship designations for their underage children, designation of the Executor, burial preference and more upon their death.

The Will and Estate Planning

Under a will you can dictate how your assets will be distributed upon death.  The biggest benefit with this is your family members will have less reason to fight over your belongings after death since you have stated who will get what in the Will.  You can either give everything you own as a whole to whomever you choose (there are limitations for this if you are married) or you can separate out your assets and indicate how particular assets are to go to particular people.  For instance if you have a classic car that you and a sibling worked on and you would like for that car to be given to your sibling that can specified in the Will.

In the case where you are married, state laws usually prevent you from completely disinheriting your spouse.  That means you cannot say in your will that your spouse gets nothing and instead all your money should be given to someone else.  If you are at the point in your life where divorce is being considered, after the divorce has been finalized you should have a new Will made.   Children under the age of 18 are also usually protected from being Last Will and Testamentdisinherited under the Will through state laws.

Wills should generally be stored in a fire proof safe within the house.  Putting a will in a safe deposit box adds extra steps to the process since  a court order must be obtained in order to get access to the safe deposit box after death.  There also should be only one executed original of the Will.  Multiple executed copies of the Will can cause confusion and slow down the process in the event new Wills were prepared at a later date with new instructions.

Why a Will?

One of the constant things in our lives that experts are always talking about is death and taxes.  Until they can figure out a way to extend our lives to make us immortal or figure out a way to give everything to everyone at no cost, both death and taxes are matters that we should take time to think about.  One should not dwell on those topics with a negative sense of impending doom, but understand that if we are not around our loved ones still need to be taken care of.  With proper planning one can make sure our loved ones are provided for of in the event something does happen to us.  Yes there are life insurance and retirement accounts which offer protection to our family members in the event of our passing.  But did you ever stop to consider how is that money from the insurance and retirement accounts distributed?  Normally money from life insurance or retirement accounts  are given out based on the instructions in the beneficiary forms we all should have filled out when we set up those accounts.  Simple enough?  Maybe not.  What if your children are the only living people who will be inheriting from your accounts and they are under the age of 18?  What if you forget to fill out the beneficiary forms?  While most state laws would prohibit under age 18 children from receiving those monies outright, the state will give that money to some adult (usually a relative if there is one) to hold and manage that money for your children.

By not having a Will you have given up that choice of who should hold and manage the money for your children.  It is possible the court may give the money to someone who may not be ideal with managing their own money and may run into problems when faced when managing money held for your children.  While courts will try and give the money to the best choice available it is not always guaranteed since they don’t know your family and friends like you do.  Yes we all have our trustworthy relatives who most certainly can manage and hold the inheritance money until the kids are above age 18, and by naming them in the Will as Guardian or Trustee you know you made the decision and did not leave it to someone else.

Of course there is also the idea of your child getting full and unrestricted access to a large amount of money at age 18.  Just like that, your children can have access to a large amount of money at age 18 to spend as they like.  Yes the wiser among our children will use that money to put themselves through college and work on improving their life.  But without our guidance and input some children may be tempted to instead get a fancy new sports car to take them to and from their college classes.  Too many bad financial decisions are made when one is younger and as a result any inheritance a person may have can quickly run out.

The above scenarios are exactly where a Will can come in handy and prevent money from falling into the wrong hands or from being spent unwisely.  By setting up a Trust you can designate how the money will be distributed to your children, who will hold and manage that money, and you can even distribute the money over time to your children.  Through the use of a Trust you can set age limitations and education requirements (i.e. certain amounts are paid out to children only after getting a college degree) so as to limit when your child can get full access to the money.  While an 18 year old may not be able to handle a large sum of money at one time, a 23 year old who has went to college and worked some should better be able to handle their finances.  All of this and more can be done with the use of a Trust.

Guardianship

In the case where we may pass before our children are above age 18 a Will can also be used to set up Guardianship for our children.  Under the Guardianship provisions of a Will a person can name anyone over the age of 18 to be the legal guardian for their minor children in case of death.  In the absence of a Will stating a preference for Guardianship Probate Court will try and find close relatives to assume Guardianship of children under the age of 18 regardless of what your preference might have been.  With no legally signed Will the court can only guess what a person would have desired and instead will usually look at who best is capable to care for children while they are under the age of 18.

Additionally if there was no Trust set up to provide for children under the age of 18 the guardian of the children will most likely also get supervisory duties for any money the children have inherited.  Under this scenario the guardian is “supposed” to use the money for the children they are caring for, whether they do or not is another story.  A Will which names one person as guardian and a Trust names a separate person as Trustee allows an extra layer of protection for any inherited money.  Of course the extra layer of protection also requires extra steps to follow which may slow down the process of getting money to children when they need it.

The decisions to name particular people as guardians for your children should be discussed with the potential guardians ahead of time so there are no surprises.  Guardians can be grandparents, aunts and uncles, close friends, siblings who are over the age of 18 and more.  Naming non-relatives as guardians when you still have blood relatives who would want to care for the children could result in court battles.  Discussing before hand your desires with both the guardians and your blood relatives of your wishes can help prevent unnecessary fighting down the line.

The Trust and Estate Planning

The commonly recommended form of Trust to set up is called an “inter vivos trust” which basically means a trust set up during the lifetime of a person.  This type of trust can be funded at the time of creation or left unfunded.  To fund the trust upon creation you can use most any assets you currently have and transfer them into the trust.  If you have an unfunded trust the proceeds from life insurance, retirement accounts, and any remaining assets named in the Will can be directed into the trust upon death.  The person setting up the trust can act as the initial trustee if so desired.

Upon death or incapacity the Trustee for a trust can either be an individual or can be specific trust companies who are setup to manage trusts.  You can name any person as Trustee under your Will and should pick someone you find to be trustworthy with managing money.  Trust companies are usually registered businesses with fiduciary and legal obligations requiring proper maintenance and management of trust Trust as part of a will.accounts under their control.  Management costs associated with trust companies will generally be higher so it may only make sense to use them when there are large sums of inheritance money to be managed.

Additional Documents

A Probate Attorney who specializes in Estate and Gift Law would be best able to help you in preparing your Will, Trust and Guardianship Papers.  The Probate Attorney would sit down with you to discuss your individual and family situations in order to best draft a Will for you.  If you are married your spouse should attend along with you as your  spouse may have a mirror image Will that often names the same people as guardians, trustees and relatives who will inherit under the Will.  You should also look into getting a Power of Attorney (POA), Health Care Power of Attorney, and/or Living Will documents.

With a Power of Attorney document there are different types to consider but the main one recommended is a POA document that only comes into effect if you are somehow incapacitated and unable to make decisions.  This type of POA will help your spouse or children make decisions for you when you cannot.  Those decisions may include dealing with the mortgage company, filing taxes, selling certain property and more.   The amount of power given in that POA document can be tailored to your desires and needs.

With regards to health, there is the Health Care Power of Attorney document which allows someone to make medical decisions for you in the event you are unable to.  This is also a helpful document to have in that it can be presented to a doctor or hospital by your spouse, adult child or someone else you trust who can then be able to make medical decisions on your behalf.  Without a Health Care Power of Attorney someone you trust to make decisions for you may get little say in medical treatments a doctor may propose.

Adding on to the Health Care Power of Attorney is a document called a Living Will which allows you to state whether you wish to be maintained on life support indefinitely.  Some people wish to express a desire to not be maintained on life support whereas others prefer to be maintained on life support.  This is not a  document you must have, but it is something that you should be aware of in case you do want to make that preference be known.

Final Thoughts

A Will and Trust are valuable estate planning tools for taking care of your family when you are gone.  A Will ensures your assets are distributed according to your wishes and can be used to appoint guardians for underage children.  A Trust can protect your assets from estate taxes upon death and can provide for more control over how your assets are distributed.  Only by sitting down with an attorney and discussing your plans, desires and needs can you fully accomplish what you want with a Will, Power Of Attorney, Health Care Power of Attorney, or Living Will.

Do you need a Will, Power of Attorney, Health Care Power of Attorney, Medical Directive or do you have more questions about those documents?

Paul Sian is a licensed attorney in the States of Ohio and Michigan.  If you would like to have a will, power of attorney, health care power of attorney, medical directive prepared for you or someone in your family or have questions about your existing documents feel free to contact me at paul@finneylawfirm.com or via phone at 513-943-5668.  Connect with me on Twitter and Facebook.

Of Counsel | ‭513-943-5668 | paul@finneylawfirm.com | + posts

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