A little trust can go a long way. The most common inheritance lies between $10,000 and $50,000. That number sounds small, but that money can cover a mortgage or student loans.
If you want to provide for your children and family, you need to examine estates and trusts. But you can’t just call an estate planning law firm up and write a plan.
What exactly are estates and trusts? What does estate planning entail? What is a will, and how is it different from an estate plan?
Answer these questions and you can take some simple steps to keep your family’s finances safe. Here is your quick guide.
Estates
An estate is everything a person owns. Pieces of physical property, money in the bank, and financial assets like stocks are all aspects of an estate.
Estates survive the deaths of their owners. They must be transferred to someone else before or after a person dies.
Debt is not a component of an estate. But a financial advisor may need to assess a person’s estate to determine how they will pay off debt.
An individual’s debt does not go away when they die, though only money in their estate can go toward paying the debt. If there is not enough money in the estate to pay it off, the debt will go unpaid.
Estate Planning
If someone dies without an estate plan, a court will transfer their belongings on its own initiative. Most courts opt to transfer pieces of property to immediate family members.
This is not always ideal. A person who is separated from their spouse may not want their spouse getting anything. They may want to give property to a friend, work associate, or distant relative.
The only way to ensure that a person’s intentions will be executed is to form a formal estate plan. The plan can include several components, including a strategy to pay off estate taxes.
Estate planning requires meetings with estate planning attorneys. An estate planning lawyer can offer many different services, so an individual should look at different professionals in estate planning law.
Trusts
Trusts are relationships that allow individuals to hold titles to property and assets. A trustor gives a trustee the right to hold titles so they can use them for the benefit of the trustor’s loved ones. All types of trusts have the same core purpose, but they operate in different ways.
Living Trusts
A living trust is a trust that a person makes while they are still alive. The trustee has the responsibility of managing the trustor’s assets so they grow in financial value.
The benefit of a living trust is that it makes transferring assets easy. A court and bank will recognize a living person’s desire to transfer assets over.
The transfer does not mean that the trustor has no authority. They can talk to the trustee and adjust how they are managing their assets. The trustor can also add additional money and resources into the trust.
Irrevocable Trusts
Irrevocable trusts are trusts that cannot be modified in any way. Once the trustor transfers their assets, they lose all of their ownership rights.
Though irrevocable trusts are not common, they offer strong benefits. They can minimize estate taxes significantly because items in an irrevocable trust do not count in a taxable estate. They also allow beneficiaries to gain government benefits and protect their assets from lawsuits.
Business assets, cash, and life insurance policies can all go into one. Yet attorneys and financial advisors can charge high fees for managing these assets.
An irrevocable trust is best for someone with a very high income and lawsuit-vulnerable profession. Doctors and attorneys should consider one.
Revocable Trusts
A revocable trust is a trust that has amendable provisions. The trustor can make requests about how they want their assets managed. They can change beneficiaries or add additional assets for the trustee to manage.
Revocable trusts have most of the benefits of irrevocable trusts. A trustor can easily transfer property without having to go through an extensive court process.
But costs can be extensive. A trustor may have to go through several different steps in order to amend their trust. They also have to monitor their plan closely, making sure the trustee is fulfilling their responsibilities.
Wills
A will is a document that outlines a plan for one’s property. It can also outline other wishes, including who the caretakers for dependent children should be.
A will is an important component of an estate plan. But it is not the entire plan. It can have components that are unrelated to finances, unlike a trust.
In order for a will to carry full legal weight, it must be written on a piece of paper. Witnesses who do not stand to benefit from the will must watch the creation of the document. They then must sign at the bottom to testify that the will was made without duress.
Estates and Trusts
Estates and trusts are crucial tools for a strong financial future. Your estate is your collection of financial assets. An estate plan ensures your assets go into the right hands.
A trust is one component of an estate plan. You can adopt a living trust so you have control over your assets. Irrevocable and revocable trusts give more authority to trustees.
A will is another component of a plan. It provides instructions for the distribution of your property.
You have to know a lot of concepts to plan your estate. Read more estate planning guides by following our coverage.
