Posted by: The Life and Legacy Planning Group
Most people understand that having some sort of an estate plan is a good thing. However, many of us don’t take the steps to have an estate plan prepared because we don’t understand the nuanced differences between Wills and Living Trusts – or dying without either.
Here’s what will generally happen if you die, intestate (without a Will or Living Trust), or if you die with a Will, or with a Living Trust. For this example, we’re assuming you have children, but no spouse:
- If you should die intestate, your estate will go through probate and all the world will know what you owned, what you owed, and who got what. Your mortgage company, car loan company, and credit card companies will all seek payment on balances you owed at the time of your death.
After that, state law will decide who gets what and when. For example:
Your state’s intestate statute may mandate divvying up proceeds equally among your children.
- Your older children will get their shares immediately if they’ve attained adulthood (18 years of age in Illinois). That means that an 18-year old is able to inherit a potentially large sum of money with no supervision regarding how that money is spent.
- The court will appoint a trustee of its choosing to manage the money for your minor children until they become adults and possibly a separate guardian to raise your minor children.
- Shockingly, that trustee can charge a lot of money to manage the money for your minor children and be a total stranger – as can the guardian who raises your minor children.
- If you die without a valid will, the court, not you, will decide the futures of your children.
Keep in mind that since your death has been published to alert valid creditors, it’s possible for predators (fake creditors) to come forth and make demands for payment – even if they’re not owed anything.
The bottom line? Dying intestate allows state law and the court to make all the decisions on your behalf – regardless of what your intent might have been. Publicity is guaranteed.
- If you die with a valid Will, your assets will still go through the probate process. However, after creditors have been satisfied, the remaining assets go to whom you’ve proactively identified in your will.
- If you want to leave money to your children and name a guardian for the minor ones, the court will generally abide by your wishes. You can set up a trust for your children and appoint a trustee to help you children manage their inheritance.
- The same holds true if you specified that you wanted to give assets to a charity, your Aunt Betty, or your neighbor.
- Keep in mind that predatory creditors are still an issue as your death has been publicized. Even with a will, probate is a public process.
The bottom line? While a court oversees the process, having a will allows you to tell the court exactly how you want your estate to be handled. But, a public probate is still guaranteed.
- If you’ve created a Living Trust, you’ve taken control of your estate plan and your assets. Trust assets are not subject to the probate process and one of the most important benefits of Living Trusts is that they are private. Although notices to creditors may be published, most of the other details (your assets, who is receiving what, etc.) remain private, helping your family minimize the risk of predators.
As a part of the trust drafting process, you’ll have named a trustee to manage your estate, even during your life when you are no longer able to, and you will have provide him or her with specific instructions on how and when your assets should be dispersed after your death.
- One word of caution – Living Trusts must be funded in order to bypass probate.
- Funding means that your assets have been retitled in the name of your Living Trust.
- Think of your Living Trust as a bushel basket. You must put the apples into the basket just as you must put your assets into the trust for either to have value.
Even if you have a prepared a Living Trust, you still need a Will to provide for any assets inadvertently or intentionally left out of your Living Trust and to name guardians for minor children. However, this type of Will, often referred to as a Pour-Over Will, is much shorter and less complicated than one that is responsible for disposing of all of your assets to your beneficiaries. It’s primary goal is to transfer to your trust those assets left out of the Living Trust while you were alive.
The bottom line? Living Trusts allow you to maintain control of your assets through your chosen trustee, avoid probate, and leave specific instructions so that your children are taken care of – without receiving a lump sum of money at an age where they are more likely to squander it or have it seized from them.
Don’t let the Will versus Living Trust controversy slow you down. And absolutely don’t risk an intestate estate. Be proactive and take charge of your legacy. Call our office today so we can answer any questions you may have and put together an estate plan that works for you and your family whether it be a Will, a Living Trust, or both.