Guest column: Wills vs. Trusts
Posted October 26, 2010 By Carissa Giebel Commentary
A will is a written document indicating how you want your assets distributed upon your death. It is also used to nominate guardians for minor children. At the time of death, wills are filed with the court, and the process of distributing your assets is called probate, which is a public process. With a simple will, assets are distributed to the beneficiaries outright, meaning the beneficiaries receive the distributions as lump sums. The only exception to this would be if the beneficiary is a minor, in which case the court would place the inheritance in a custodial trust. Whatever is left will be given to the child when he or she turns 18.
A will can provide for a testamentary trust to be created upon death. If the judge determines the creation of the trust would be efficient, this trust will provide some protection for the beneficiaries. This prevents the beneficiaries from receiving a lump sum all at once. Instead, the assets would be managed for the beneficiaries' protection over an extended period of time. For example, if a child is inheriting, he or she may receive one-third at age 20, one-third at age 25, and one-third at age 30. These trusts remain under court supervision until termination.
A living trust is created during the lifetime and avoids the probate process and court entirely if it is properly funded. These trusts can provide asset protection for beneficiaries for their lifetime, legitimate tax avoidance, and enhanced privacy. Living trusts provide the flexibility to leave detailed instructions to beneficiaries so you can leave what you want, to who you want, when you want, the way you want. Beneficiaries can be given as much or as little control over their inheritance as you choose, all while protecting their inheritance from a potential divorce and creditors. A living trust can also be set up so a larger portion of your estate can be passed on estate-tax free to beneficiaries, rather than being subject to an estate tax rate of 55 percent, which is the scheduled rate starting in 2011.
If no estate planning is done, assets are distributed according to the laws of intestacy, which means the state statutes determine who gets the property. The judge will determine who will be in charge of the distribution process, since no personal representative was nominated because no will was done. If minor children are involved, the judge also chooses guardians for the children. The fact that the children have godparents does not qualify as naming guardians. This situation is not ideal because the judge makes all the decisions, rather than you.
Therefore, it's important that every adult has some estate planning done. It saves loved ones a lot of headache, time, and money in the long run.