Myth: My will is the only estate planning document I need.
Fact: ONLY assets in your (single) name are controlled by your will.
While a will is a necessary component of an effective estate plan, it does not direct the distribution of jointly held assets or contractual assets (such as where a specific beneficiary is named in a life insurance policy, your IRA, 401(k) plan, annuities or a pension plan. A will can handle simple bequests and outright distributions to beneficiaries, but it lacks key flexibilities, necessary in meeting complex family needs that are important to many people.
Probate costs and delays are another issue. Single name assets that pass to heirs by will are subject to the probate (proving) process. Costs (attorney, executor other filing fees can range from 7% to 12% of your estate). Also, depending on the asset make up of your estate, it can sometimes take years to settle before your beneficiaries receive their inheritance.
There is also a lack of privacy in probating a will. An inventory of all assets, valued at the date of death must be filed at the courthouse and is subject to public scrutiny. Probated estates take time to settle with possible procedural tie-ups, sometimes lasting years, delaying ultimate distributions to beneficiaries.
Trusts avoid many issues associated with wills.
Myth: Trusts only make sense for the ultra-high net worth (estates greater than $6 million – the approximate U.S. Estate Tax Credit).
Fact: An appropriately drafted trust can be a critical estate planning tool for high net worth individuals, often saving significant sums in estate, gift and inheritance taxes.
But, trusts can also be useful to people with more modest estates.
A trust can assure that your assets will not ultimately pass to the wrong heirs – one of the hazards of holding too many of your assets in joint name (see our article “The Hazards of Jointly held Assets’ by clicking this link). And, as stated above, a trust avoids probate, protects privacy and controls (and customizes) asset disposition among different types of beneficiaries with sometimes greatly divergent needs.
You might also have concerns about leaving money to certain beneficiaries with no strings attached. A carefully written trust (either a living or testamentary trust) can solve those issues. The trust controls asset distribution after your death, essentially ‘standing in your shoes’ to make critical distribution decisions. Simply put, trusts can be structured enabling you to pass wealth to beneficiaries with varying needs in the most efficient and expeditious manner or on a conditional basis, if necessary.
You may want to consider naming a ‘trust protector’. A trust protector is typically an individual or small committee of family members or friends charged with trust management oversight responsibilities. These are people who know you and your family history and can be counted on for assisting the trustee in interpreting your trust’s instructions (for example – in making appropriate and timely discretionary distributions to your beneficiaries). An impartial trust protector can be vital in assisting the trustee with sometimes subjective decisions that often unfold as family situations change during the life of the trust. A trust protector can also have the authority to change the trustee for particular reasons.