The Use of Wills, Trusts, Contracts and Titling to Transfer Assets
What’s a living trust? Do you need a trust? What’s a living will? What’s the difference between a will and a living will? Do you need a will? Or a living will? What’s a TOD account? POD account?
A living trust is a revocable trust established during your lifetime and allows the trustee for virtually complete control over the assets. Should you become incapacitated or disabled, the trust is in place to manage your financial affairs. At death, the assets are distributed and managed according to the trust document under the supervision of a successor trustee. A will is a legal document that allows you to distribute your property to those you choose, and if you have minor children, the will also gives you the opportunity to nominate a guardian. A living will is a document that outlines your medical wishes in the event you are unable to speak for yourself, such as what measures you would like to be taken to keep you alive. TOD (Transfer on Death) and POD (Payable on Death) are types of account titling which can enable you to maintain control of the account yet allow for the account to pass to the person(s) named upon your death.
Because estate planning is governed by state law, the differences among the states are as diverse as they are. Even laws in community property states vary significantly. So it is a good idea to know your options based on your state’s law. Having said that, the area of transferring assets at time of death doesn’t have to overwhelming, and the answers to a few simple questions can guide you through the decision-making process.
Would you consider yourself a do-it-yourselfer or someone who would rather rely on the advice of others? If you like to do things yourself, you will probably be comfortable doing the necessary research to determine which route will best suit your needs – a trust, a will, titling, or a combination – and then putting your choices into place. On the other hand, if you’re more comfortable with a professional, an attorney in your area specializing in estate planning can advise you as to which method would best suit your situation.
Would you consider yourself a technical person or an emotional person? If you think of yourself as being more emotional than technical, you would probably be best served by establishing a trust. Trusts allow you to take care of everything, including the financial affairs of your family after your death. If you lean towards the technical side, a will, titling and beneficiary designations might be the way to go.
Are you a private person or would you mind if your affairs were public knowledge? If you consider yourself a private person, a trust gives you that privacy plus expediency. A will is public record and it allows a certain number of months for creditors to come forward with claims, which could delay settling the estate. As mentioned earlier, assets in a trust are easily transferred and maintained because the entity lives on after death.
Do you have minor children? If you do, it is recommended you name a guardian in your will and establish a trust where your assets would be placed after your death for the benefit of your children. You will also have to name a trustee for that trust, which can be someone other than your children’s guardian.
This area is particularly important and deserves an example. Let’s say you have two children and two sets of loving grandparents who would be equally qualified to care for the children. Without a guardian provision the courts could decide to split the children between the grandparents, which may not be in the best interest of the children or conform to your wishes.
Regardless of which estate planning method(s) you choose, do something. If an individual has no will, or if the will is invalid, or if the will has been revoked, then that person has died “intestate.” Some of the disadvantages to this lack of estate planning are:
- The laws of the state will determine who will receive the property. A guardian is named by the court.
- The court appoints the personal representative, who may charge more for administrating the estate than a family member.
- For larger estates tax saving opportunities will be lost.
If your estate needs are straightforward, there are will kits available online as well as at local book and office supply stores. Check with your state’s bar association online for a list of local attorneys who specialize in estate matters then call for an estimate. As with the other aspects of your financial life, the more complicated your situation, the more sophisticated the planning options. If your estate needs go beyond straightforward, or if the process is outside your comfort zone, contact an attorney.