Having an estate plan is a smart idea for several reasons. One reason is that YOU get to decide what happens to your money and property when you die. Without a plan, the state where you live determines how your assets are distributed. And you might not like the choices the state makes. Sometimes people don’t invest in estate planning because they do not understand the nuances between a will and trust or dying without either.
Here are generally your options when you pass away:
- Intestate (without a will or trust),
- With a will,
- With a revocable trust
In the following example, let’s assume you are a single parent with two kids.
Again, if you die with a will or a trust, you have decided to control what happens to your assets after you pass away.
Will. If you die with a valid will, your assets must go through probate. That includes all your accounts, real property, tangible personal property, and any intangible assets you own. The first to be paid are the creditors. After your creditors are paid, the balance (if there’s any) goes to anyone you specifically named in your will. In a will, you can appoint a guardian for your two kids. If you have family, friends, and charities that you want to give money to, a will allows you to do that.
Takeaway: The probate court oversees the process, but with a will, you get to tell the court what to do. One thing of note, probate is a public process, so your will is not private.
Trust. If you create a trust, you are in total control of your estate plan, accounts, and
property. One of the most important benefits of a trust is that it’s private. Two things of note: to be valid, the trust must be funded with assets, and all assets must be properly titled in the name of the trust. You will still need a will. A will that is part of the trust-based estate plan is called a pour-over will. It captures anything not tilted correctly in the name of the trust.
Takeaway: A trust lets you retain control of your valuable assets through your trustee, avoid probate, and leave specific instructions so that your children are taken care of. With a trust, you can define when and how your kids will receive their distributions. This is especially important if your kids are minors or just not equipped to receive a large sum of money at one time.
Intestate. If you die without a will or a trust, we call that dying intestate. Here, your assets, including your homes, rental property, unimproved land, tangible personal property, intangible items, and any financial accounts, will go through probate. That means anyone can find out what you own, what you owe, and who gets what. Your creditors will be the first to collect. Since your passing was published, your unprotected estate has become a feeding ground for fake creditors. Then state law determines who gets what is left.
If your children are your only heirs and you haven’t provided instruction for their care, a guardian will be appointed for your minor child. Some guardians charge a lot of money which might eat into your assets. And because you didn’t make allowances beforehand, the court could appoint someone you would never have chosen to raise your minor child. Is that what you want – a stranger raising your child?
Takeaway: Dying intestate allows state law and the court to make all the decisions on your behalf, regardless of your intent. Publicity is guaranteed.
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