Most people have heard that estate planning is important and that putting a plan in place is, as Martha Stewart would say, a “good thing.” Unfortunately, many people never get around to doing anything about it either because there isn’t an urgent need at the moment, or they just find the whole topic to be disconcerting and confusing. Many people don’t take make the effort to put an estate plan in place because they don’t understand the nuances between wills and trusts – and then they end up dying without either.
Below is a broad outline of what happens if you die with or without a will, or with a trust. For these examples, I’m assuming you have children, but no spouse:
1. Intestate. Yes – dying intestate is a choice that many people make by default. If you should die “intestate” (lawyer’s fancy word meaning without a will or trust) and own property solely in your name when you die, your estate will probably have to be probated. Since the probate courts are public courts of record, the world will know what you owned, what you owed, and who got what. The person handling your estate, called your “personal representative”, will pay any debts you owe at the time of your death to the extent there are available assets.
After that, state law will decide who gets what and when.
- For example, if your only heirs are your children and you have not provided any instructions, state law will mandate divvying up proceeds equally.
- Your older children will get their shares immediately if they’ve reached the age of adulthood.
- If you have children who haven’t reached the age of adulthood, the court will appoint a guardian to manage the money for your minor children until they become adults. That person is called a “conservator” and they will be under the court’s supervision (meaning $$) for as long as the child is a minor or until the money runs out.
- Shockingly, the conservator can charge a lot of money and be a total stranger – as can the guardian who raises your child, if you didn’t appoint one.
- If you don’t make and write down these important decisions, the court, not you, will decide who raises your minor children and who spends your money for that purpose.
In today’s world where someone is always looking for an opportunity to take advantage of others, it’s not uncommon for predators (fake creditors) who learn of someone’s death through the probate publication process to show up and demand payment – even if they’re not owed anything. Beware!
The bottom line? Dying intestate allows state law and the probate court to make all the decisions for you – regardless of what your intent might have been. Publicity is guaranteed!
2. Will (sometimes called “Last Will and Testament”). A will is your instruction letter to the probate court telling it how you want your estate to be handled, and who is in charge of handling it. If you die with a valid will, and own assets solely in your name, your property will still probably go through the probate process. However, after creditors have been paid, the remaining assets go to the people you name as your beneficiaries in your will.
- If you name a conservator to manage money for your minor children, and appoint someone to raise them, the court will usually abide by your wishes.
- The same holds true if you directed that some of your assets be given to a charity, your Aunt Betty, or your neighbor.
- Don’t forget that predatory creditors will still an issue since notice of your death will have 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.
3. Trust. A trust is a contract you make with yourself to hold your property during your lifetime, and provide instructions for what happens to it if you become mentally disabled or die. The person in charge of managing the trust is called a “trustee”. During your lifetime, you can be the trustee of your own trust, so you don’t have to give up any control over your property.
If you’ve created a 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 trusts is that they are private. Notices are only published if the trustees have concerns about possible creditors, so you may avoid predators coming after your estate.
Your trust will spell out your specific instructions about how your assets should be distributed and when.
- The key to making a trust work the way you expect it to work is to make sure it is fully “funded.
- A “funded” trust is one for which your assets have been retitled in the name of your trust, or your trust is named as beneficiary of assets like insurance policies and, in some cases, retirement plans.
- Think of your trust as a big empty box you can use to give your property to someone after you die. If the box is empty, it doesn’t do much good.
You still need a will to pour any assets you leave out of your trust into it, and to name guardians for minor children.
The bottom line? Trusts allow you to maintain control of your assets through your chosen trustee either during a time of lifetime mental disability or after death, avoid probate, and leave specific instructions to help protect what you leave behind for your family from their creditors and predators.
Don’t let the will versus trust confusion slow you down. Call me at (801) 263-0132 or contact me today and I’ll be happy to help you create an estate plan that works using whatever method will best serve your needs.