Author: Mike Dobransky

Which Strategy Meets Your Estate Planning Needs?

When drafting estate planning documents, most people start with a will. That’s because wills are relatively straightforward and easy to implement. However, depending on your needs and legacy wishes, a will alone may not be enough to protect your assets and your loved ones. Let’s consider the pros and cons of two important estate planning strategies – wills and trusts.

Wills

A will is a legal document that allows you to provide instructions for how your assets will be passed down following your death. It also allows you to designate guardians for your minor children. It is important that everyone, regardless of net worth, establish a will to guide the distribution of assets.

Pros:
Wills provide several distinct estate planning benefits:

• Simple and cost-effective – Implementing a will is a straightforward process that is typically less expensive than other estate planning strategies, which makes a will a great first step in developing an estate plan.
• Clear direction – A will allows you to give specific instructions regarding who receives what assets. It also allows you to designate guardians for your minor children or other dependents. Clarifying your instructions in a will can provide peace of mind to your heirs and help avoid disputes between family members.
• Funeral instructions – Within your will, you can include details about your funeral wishes, including specific locations, burial instructions, meaningful readings and songs, etc. These instructions can be a gift to your loved ones, as they remove some of the stress of making arrangements during an emotional time.

Cons:
There are some downsides to using only a will, including:

• Probate – A will does not protect your assets from probate. In fact, probate is the process a will’s executor must follow to obtain the necessary authority to distribute your estate following your death. Probate can be an expensive, time-consuming and stressful process.
• Lack of privacy – Probate proceedings are a matter of public record, which means that anyone, including estranged family members, fraudsters and creditors, can easily find out who stands to inherit your wealth and how much they stand to receive. This can make your loved ones a target for scammers and others who hope to share their financial windfall.
• Easy to contest – A will does not give you the final word in how your assets and property are distributed, as there may be other legal considerations that supersede the instructions of your will. Also, wills are easy to contest, which means that relatives can take legal action if they believe they should be entitled to some portion of your estate. These legal battles lead to added stress, time and money for your heirs.
• Only takes effect after your death – A will specifies how assets are to be distributed following your death. It does not protect you in the case of incapacity.

Trusts

A trust is a legal entity that holds and distributes assets to the trust’s beneficiaries according to the trust’s terms. In contrast to a will, a trust can become effective while you are alive and remain in effect after you die.
Three common types of trusts include:

• Revocable trust – A revocable, or living, trust allows you, as the grantor, to maintain full control of your assets throughout your life, while providing direction on how your assets will be distributed following your death. Assets held within the trust are not subject to probate, which means your heirs can avoid this timely and expensive legal proceeding. At any time, you can change the terms of the revocable trust, modify the trust’s beneficiaries and even terminate the trust altogether.
• Irrevocable trust – Irrevocable trusts do not offer the same level of flexibility as revocable trusts, but they can be helpful in certain complex situations. Once established, the terms of an irrevocable trust cannot be modified without the consent of all beneficiaries, nor can the trust be terminated. Irrevocable trusts are often implemented by individuals who wish to gift assets to a third party through his or her lifetime or with certain restrictions.
• Special needs trust – Special needs trusts allow individuals to provide ongoing financial support to loved ones with special needs without impacting the loved one’s eligibility for government benefits, such as Medicaid and Supplemental Security Income (SSI).

Pros:
Trusts provide the following estate planning benefits:

• No probate – Assets held within a trust are not subject to probate, which can save your heirs significant time and money when distributing assets.
• Tax efficiencies – Certain irrevocable trusts remove assets from your taxable estate, resulting in a reduced tax exposure.
• Incapacity planning – Trusts allow you to designate a successor trustee to manage trust assets, should you become incapacitated and unable to do so on your own.
• Privacy – Trusts can protect your loved ones’ privacy, as assets held within a trust are not subject to probate.
• Support for special needs loved ones – Special needs trusts allow you to provide financial support for a special needs beneficiary without jeopardizing his or her eligibility for public benefits, such as Medicaid and SSI.

Cons:
The disadvantages of trusts include:

• Asset titling – For a trust to be effective, it must own assets. This means that after establishing the trust, you will need to retitle all assets and accounts in the name of the trust, which can be a time-consuming process.
• Cost – Establishing and maintaining a trust is typically more expensive than creating a will. Costs often include legal fees, administrative expenses and trustee fees.
• Does not designate guardianship – If you have minor children, it’s important to note that a trust does not allow for guardianship designations. These designations are typically specified in a will.
• Complexity – Trusts can be more complex to establish and maintain than a will. It’s wise to work with an estate planning attorney to help ensure your trust is properly structured to meet your needs. Could you use some help establishing estate planning strategies to support your loved ones? North Oaks is here to help. We support clients in building strong financial futures, one brick at a time. Schedule a call to learn more.