For many of us, the idea of creating a living trust or will is something we would rather not think about. After all, it's not exactly the most pleasant topic to consider. Of all the issues we face when discussing money, strategizing what happens IF YOU DIE may be at the top of the "no thanks, I'd rather do anything but this" pile.
In fact, Taylor had been pressing me for over a YEAR to establish a will or a trust, to figure out which one we would need and how to go about doing so. That's right, OVER A YEAR before I got to it. I'm a fantastic procrastinator. I hate thinking about death. And I’m certain I’m not alone!
But the truth is, if you want to protect your assets and ensure they are passed on according to your wishes, setting up a trust or will is one of the most important things you can do. Luckily, I bit the bullet and did her bidding and will now share all that work with you!
Creating a trust or will may seem like a daunting task, but it doesn't have to be. In this blog post, I'll cover everything you need to know about setting up a trust or will. I'll also explain the difference between a trust and a will so that you can decide which one is right for you. Whether you're looking for peace of mind or want to make things easy for your loved ones after you're gone, this blog post is for you.
What’s the Difference Between a Will and a Trust?
A trust and a will are both legal documents used to manage a person's assets and property after they die. The single most important difference between a trust and a will is the timing of when they take effect. A trust becomes effective during the grantor's lifetime, while a will only takes effect after the person has died. This difference has several implications, including the grantor's ability to control and manage their assets during their lifetime, the avoidance of probate court, and the ability to provide for the management of assets in the event of incapacity. This timing difference is often seen as the most important difference between trusts and wills as it has a significant impact on estate planning and asset protection.Other differences between a trust and a will worth considering are:
- Purpose: A trust is established during the grantor's lifetime to manage and protect assets for the benefit of the beneficiaries, while a will is a legal document that outlines how a person's assets will be distributed after their death.
- Control: A trust gives the grantor control over their assets during their lifetime and after death, while a will only comes into effect after the person has passed away.
- Probate: Trusts typically avoid probate court, which can be a time-consuming and costly process, while wills are typically subject to probate.
- Privacy: Trusts can provide a higher level of privacy, as they do not become public record like wills.
- Timing: A trust can become effective immediately, while a will only takes effect after the person has died.
- Estate Planning: Both trusts and wills can be used for estate planning purposes, but trusts offer more flexibility and control over the management and distribution of assets.
- Asset protection: Trusts can offer more robust asset protection than wills, as they can be structured to protect assets from creditors or legal claims.
- Estate Tax: Trusts can be used for estate tax planning, while wills do not have the same flexibility in this regard.
- Continuity: Trusts can continue for generations, providing benefits for multiple generations of beneficiaries, while wills only apply to the distribution of assets after a single person's death.
- Incapacity planning: Trusts can provide for the management of assets in the event of the grantor's incapacity, while a will only takes effect after death.
- Complexity: Trusts can be more complex to set up and manage than wills, but they offer a wider range of benefits and options for estate planning.
- Amendment: Trusts can typically be amended more easily than wills, allowing for changes to be made as the grantor's needs and circumstances change.
What is a Trust and how does it work?
A trust is a legal arrangement that allows a third party, called a trustee, to hold and manage assets on behalf of one or more beneficiaries. The trust is established by a grantor, who transfers ownership of the assets to the trust. The grantor can also specify in a trust document how the assets are to be managed and distributed.
A trust offers protection and control over the assets that are placed in it. The assets in the trust are held separately from the personal assets of the grantor, trustee, and beneficiaries and are protected from creditors or other legal claims.
The trustee is responsible for managing the trust according to the terms specified in the trust document and for using the assets to provide for the beneficiaries. Trustees have a fiduciary duty to act in the best interests of the beneficiaries and to use the assets for their benefit, not for the personal benefit of the trustee.
Beneficiaries are entitled to receive distributions from the trust according to the terms set forth in the trust document. This can include income generated by the assets in the trust, as well as principal or other assets if specified in the trust document.
Trusts can be used for a variety of purposes, including estate planning, tax planning, and asset protection. The specific details of how a trust works will depend on the type of trust, the jurisdiction in which it is established, and the terms outlined in the trust document.Setting up a trust can seem overwhelming at first, trust me, I put it off for YEARS! But, once I understood how they work and started to look into setting one up, I found that it is much simpler than I had originally feared, and I think you'll agree.
The benefits of setting up a Trust?
We found that setting up a trust offers numerous benefits, both financially and emotionally. Financially, trusts can help you manage your assets, minimize taxes, and protect your assets from creditors or legal claims. Trusts can also provide for the distribution of assets to your beneficiaries in a way that reflects your wishes and provides for their long-term financial security.
In addition to the financial benefits, setting up a trust can also provide emotional benefits. Trusts can give you peace of mind knowing that your assets will be managed and distributed according to your wishes, even after you are gone. Trusts can also provide a sense of security for your loved ones, as they can ensure that they will be provided for, even in the event of your death or incapacity. Furthermore, trusts can help avoid probate court, which can be a time-consuming and emotional process, and can provide a higher level of privacy compared to wills.
I'm sure I peaked your interest with minimizing taxes. Let's cover how a trust can help minimize taxes in several ways:
- Income Tax: Trusts can be structured in a way that allows income to be taxed at a lower rate, or to be deferred until a later time when tax rates may be lower.
- Estate Tax: Trusts can be used for estate tax planning, allowing for the transfer of assets from the grantor to their beneficiaries in a way that minimizes estate taxes.
- Gift Tax: Trusts can be used for gift tax planning, allowing the grantor to make gifts to their beneficiaries without incurring gift tax.
- Capital Gains Tax: Trusts can be structured to defer capital gains taxes on the sale of appreciated assets, allowing for the tax-free growth of assets over time.
- Generation-Skipping Transfer Tax: Trusts can be used to minimize or eliminate generation-skipping transfer taxes, which are taxes on transfers of wealth to future generations.
By carefully structuring the terms of the trust, it is possible to minimize or eliminate these taxes and maximize the benefits of the trust for the grantor and their beneficiaries.
Quick CYA for you, it is important to consult with a professional tax advisor when setting up a trust to ensure that the terms are structured in a way that minimizes taxes and complies with all applicable tax laws.
Overall, setting up a trust can be a valuable tool for protecting your assets and ensuring that your loved ones are taken care of both emotionally and financially.
How to Set up a Trust with Trust & Will
OK! So, let’s cut to the juicy stuff. How did I become the family hero? I found an amazing service that allowed me to cut out all the “find a good lawyer who I can trust to setup my trust” business.
I was able to save a ton of money and time, and I know I can always change my trust at a whim, easily. Oh, and if things get more complicated than they currently are, I can source trusted and qualified help, all through one business. That business is called Trust & Will.
For $599 (at the time of publishing, ($39/year thereafter)) you can easily set up a Trust in less than an hour. Are you kidding me?! This process required a few simple steps that we completed in the comfort of our own home. First, you must choose between which types of trusts best suits your needs; which are listed here for your convenience. We went with a revocable trust. Once you decide which option is right for you, the next step is to create a customized estate plan on their website.
Through this platform, you will be able to upload all necessary documents such as beneficiary information and financial resources to provide additional security for your beneficiaries. Finally, execute your trust online with the help of a licensed attorney who specializes in wills and trusts ensuring it meets any state or federal laws governing the formation and administration of trusts where you live. By relying on Trust & Will's comprehensive service offerings and following these simple steps, setting up the trust of choice has never been easier or more secure!
When setting up a Trust, it includes the following:
- Revocable Living Trust - The central hub of your estate plan with provisions for the management, control, and distribution of your assets during life and after death.
- Schedule of Assets - A listing of assets that you hold in the Trust are subject to the provisions of the Trust. This can be easily updated as you add or remove Trust assets.
- Last Will & Testament (Pour Over Will) - Your final wishes for your dependents and arrangements, with specific references to the details outlined in your Trust.
- HIPAA Authorization - Authorizes trusted individuals to receive your protected health information for specified purposes.
- Living Will - Specify your preferences for healthcare and medical treatment to be used as guidance if you are ever unable to make decisions.
- Power of Attorney - Assign someone (an agent) to manage your personal and business responsibilities if you are away or incapacitated.
- Certification of Trust - Provide this document to third parties in place of a copy of the Trust. This contains a summary of key provisions from the Trust but does not reveal other personal details.
- Nominate child and/or pet guardians
- Decide who will handle your affairs
- Leave specific gifts (money, possessions, property, etc.)
- Determine how your assets will be distributed
- Exclude individuals from receiving your property
- Specify your final arrangements
- Note any special requests
- Decide what should happen in a medical emergency
- Designate health care agents
- Grant trusted individuals access to your medical records
- Add conditions to asset distributions
- Avoid probate court
I sat down with Taylor, and step by step, we answered the tough questions about our plans when the inevitable finally arrives for either of us (hopefully not for a LONG TIME). I mean, with advances in modern science and technology, it’s becoming more and more likely that our lives will be extended far beyond our wildest dreams, but that’s for another article!
Once we got everything setup, we waited about a week while Trust & Will sent our documents in a really nice package. We reviewed the documents for accuracy, then went down to our local pack and ship shop who has a notary on staff. In about 20 minutes, we had the whole thing executed and notarized. So all in, we probably spent 2 hours between setup, driving to the notary, signing, etc. Not bad eh?!
If I setup a Trust, do I still need to setup a Will?
A trust may not address all aspects of estate planning. For example:
- Guardianship of Minor Children: While a trust can provide for the care and support of minor children, it typically cannot appoint a guardian for those children. This must be done through a will. When setting up a Trust with Trust & Will, this is covered!
- Naming a Personal Representative: A trust does not have the power to appoint a personal representative, who would be responsible for settling any final debts or obligations, distributing assets that were not transferred to the trust, and managing probate if necessary.
- Back-Up Plan: While a trust can provide a clear plan for the distribution of assets, there may still be assets that were not transferred to the trust and would need to be addressed through a will.
- Non-Probate Assets: Certain assets, such as life insurance policies and retirement accounts, may pass outside of probate to designated beneficiaries, regardless of the provisions of a will or trust.
While a trust can be a powerful tool for estate planning, a will may still be necessary to address all aspects of estate planning and provide a comprehensive plan for the distribution of assets and care of loved ones.
What is a Living Will and how does it work?
A living will, also known as an advance directive or healthcare directive, is a document that outlines a person's wishes regarding medical decisions and end-of-life care. The purpose of a living will is to ensure that a person's desires are known and respected, should they become unable to make their own medical decisions in the future.
A living will is an important tool for securing peace of mind and reducing confusion in the event of a medical emergency. By outlining their desires in advance, individuals can ensure that their medical treatment aligns with their values and beliefs.
It is important to note that the legal status of living wills varies by state. In some states, a living will may have the force of law and be legally binding, while in others it may be more persuasive or advisory in nature.
Individuals can work with an experienced attorney to create a living will or can utilize online resources for guidance on creating a simple but effective living will. However, it is important to understand that the laws and regulations surrounding living wills vary by state, and an attorney can provide more detailed and accurate guidance that takes these variations into account.
In addition to a living will, individuals may also consider creating other estate planning documents, such as a durable power of attorney for healthcare or a healthcare proxy, to ensure their medical wishes are respected.
The benefits of setting up a Living Will
Having a living will provides peace of mind and emotional security for you and your loved ones. It allows you to clearly express your wishes for medical treatment and end-of-life care, in case you are unable to make decisions for yourself in the future. This can prevent confusion, misunderstandings, and emotional stress for your family during a difficult time. A living will provides guidance for your healthcare providers and helps ensure that your medical decisions are honored. It also allows you to maintain control over your medical treatment, even when you are unable to speak for yourself. By having a living will in place, you can feel confident that your wishes will be respected and that your family will be able to focus on providing emotional support and comfort during a difficult time.
Writing a trust or a will can be an intimidating prospect, but the peace of mind you get from knowing that your assets and belongings will be taken care of is worth the effort. Establishing a trust or a will may take some time, but you don’t have to do it alone—reach out to friends and family for help if you need it, or speak with an attorney for guidance. Thankfully, now that you have the background information in hand, you have the tools necessary to get going. We loved going with Trust & Will, but personal finance (and estate planning) is PERSONAL! You may need to go another route and that's ok. Above all else, remember : when it comes to setting up a trust or writing a will, start early and plan ahead! Take life one step at a time and don’t wait until it’s too late.
Though it may not be the most pleasant topic to think about, setting up a trust or will is an important part of protecting your assets and your family. I hope this article has given you a better understanding of what trusts and living wills are, how they work and some of the benefits associated with each. As always, we recommend consulting with a tax professional, attorney and your family before taking any actions to ensure that your estate plan is right for you and your unique circumstances.