We make a lot of decisions about the direction we want to go in our life on a daily basis. Whether we’re aiming for a big job promotion or planning for retirement, there are a lot of fun things to look forward to. But do you have a plan for what will happen to your money or the rest of your estate should you pass on?
If you don’t, you’re not alone. In fact, only 40 percent of Americans have a will or trust. Many put off post-life planning because it’s unpleasant, but many simply don’t know how a will or a trust could benefit them and their loved ones. They may not even know the difference between wills and trusts.
If you’re one of those people, you’re in the right place. Read on to learn everything you need to know about wills and trusts!
What Is a Will?
A will is a document that you create yourself or with the assistance of an attorney. Your will details exactly how you want your assets and personal property distributed after you pass. Once you have completed your will, you will need to sign it in front of one or more witnesses, depending upon the laws in your state.
A will is a living document. That means that you are able to make changes to your will throughout the rest of your life should the need arise. For example, you would amend your will if you had another child or if you acquired real property after your last will.
The only valid will upon your death is the last will you prepared, thus the common phrase “last will and testament.” Each amended will supersedes the previous version.
What should you include in your will? A will can cover pretty much every conceivable thing that you have when you pass. It can even detail exactly how you would like your will to be executed.
One of the most important things you should consider is if you have minor-aged children at home, who will be your children’s’ guardian. If you do not designate a guardian for your minor children in your will, the state will appoint one for you. This person may not be who you would have chosen to raise your children.
This is something you should discuss with your partner or co-parent in the event you both should pass. You will also want to verify that your chosen guardian is prepared to take on the task of raising your children.
You will also want to think about what portion of your estate goes to your children if any portion at all. You have the option of disinheriting your children entirely if that is your wish.
Thinking about disinheriting your spouse and giving the entirety of your estate to your children? Think again if you live in a community property state. These states do not allow you to disinherit your spouse.
If you aren’t sure about how you want to structure your will, then it is important that you seek the counsel of an attorney. They can help you navigate the will creation process.
What Is a Trust?
When you create a trust, it creates a fiduciary relationship between a designated person and your beneficiaries. The designated person, often termed a trustee, administrator, or executor makes sure that your assets land in the hands of the right beneficiary.
Beneficiaries are generally people like your spouse or your children. You are not limited in who you can designate as a beneficiary. Some designate charitable organizations, cities, and even pets as beneficiaries.
Types of Trusts
There are three main types of trusts of which you should be aware.
The first type of trust is termed a revocable living trust. These are the most common type of trust and what you think of when you hear the term trust fund.
In a revocable living trust, you would be the grantor — a person who creates and funds the trust. You would also serve as the trustee during your lifetime, which basically means you would make sure that the beneficiary receives the property as necessary. You also have the authority to make any changes you feel are proper, such as adding or reducing the amount of property included in the trust, at any time.
The second type of trust is an irrevocable living trust. Once you set up this type of trust, there is nothing you can do to change it, and someone else would serve as a trustee. This type of trust has some tax benefits for wealthy people that make it worth creating over a revocable living trust.
The final type of trust is called a testamentary trust. These do not exist until you pass on, and the specifics of this type of trust is written into your will.
Essentially, this how the details of your will get executed, and it is created by the executor you designated in your will. This is why it is critically important that you choose an executor you really trust when you create your will.
Each type of trust has its benefits, and you should consider all of your options with the assistance of an attorney to make sure that all wishes and needs are met.
Wills and Trusts Are Essential
End of life planning is one of the most important things you can do to ensure that your money and property are handled exactly as you want them to be handled. Wills and trusts have separate, but equally important functions for the end of your life. Save your loved ones the stress of decision-making on your behalf and prepare your will and trust today!
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