Without an estate plan, an individual has no control over what happens to his or her assets after passing away. But the right plan can determine who inherits which item of property, ensure that your loved ones are taken care of, and maintain more of your hard-earned wealth for your family. A last will and testament and trust are two of the most fundamental components of an estate plan. Properly drafting and executing these documents requires the assistance of an experienced attorney. LaFountain & Wollman P.C. is your trusted estate planning law firm.
What Is a Last Will and Testament?
Known simply as a will, a last will and testament is more than just a list of instructions as to who inherits what from your estate. It is an enduring memorialization of your values and determines how your legacy will be preserved.
A will dictates which of your heirs shall inherit the various assets that you leave behind as part of your estate. This includes real estate, vehicles, collectibles, cash, personal property, and more. If you have minor children, you can use your will to appoint legal guardians to care for them if you pass away. You can also decide who will serve as the personal representative (executor) of your estate to ensure your wishes are carried out.
Requirements for a Valid Will
To ensure your will is properly drafted and executed, the following elements must be present:
- Age: The testator (person who creates the will) must be at least 18 years old.
- Writing: In most cases, the will has to be in writing.
- Signing: The will must either be signed by the testator or by a designated person in the testator’s presence and at the testator’s direction.
- Witnesses: There should be two witnesses to the signing of the will, and they should be disinterested (meaning, they don’t stand to inherit from the will).
- Sound mind: The testator must be mentally competent to execute the will.
- Transfer: The language in the will must clearly transfer assets to specific beneficiaries upon the testator’s death.
Limits To What a Will Can Do
A will does not override beneficiary designations made under a life insurance policy or retirement plan. It also doesn’t take precedence over jointly owned property, such as that held by a joint tenancy deed.
Additionally, a last will and testament does not eliminate the need for probate. Probate is a court-supervised process designed to prove the validity of a will and ensure the proper heirs inherit from the decedent’s (the person who has died) estate. As discussed below, however, a trust can be used to avoid probate and its costs.
What Is a Trust?
A trust is a legal instrument by which the grantor (the person who makes the trust) transfers assets to another individual (the trustee) who manages these assets for the benefit of third-party beneficiaries. The trust sets specific guidelines for how the property is to be managed. It is the trustee’s duty to follow the terms of the trust and state law.
Many people believe that trusts are reserved for the wealthy, but this is not true. People from all walks of life use trusts to accomplish a number of estate planning goals. Some examples are:
- Avoiding probate and the time and expense associated with it
- Reducing the impact of estate taxes and preserving more assets for the family
- Providing for periodic distributions of trust assets to children
- Supporting children who have special circumstances such as medical issues, money problems, or a drug addiction
- Maintaining the privacy of the family since, unlike wills, trusts are not filed with the court
Revocable and irrevocable trusts are the two most common types used.
Revocable trusts
These types of trusts can be amended or revoked during the grantor’s life. The grantor can still access and use property that is transferred into the trust. Often, the grantor and trustee are the same person, which allows the grantor to manage the trust as he or she wants. Continued control over trust property is therefore the primary benefit of a revocable trust. Upon death, the trust becomes irrevocable and its property passes on to beneficiaries.
However, there are some drawbacks. Trust assets are treated as if they are owned by the grantor since he or she has continued access to them. As such, the revocable trust will not protect assets from certain creditors. The revocable trust also offers no immediate tax benefits.
Irrevocable trusts
An irrevocable trust, as its name implies, cannot be revoked (nor can it be changed) once it is established. Assets transferred into the irrevocable trust are no longer considered to be owned by the grantor, but instead by the trust. The trustee is granted considerable authority to administer the trust, provided it is done in accordance with trust instructions and the law. Irrevocable trusts are typically used to provide legacy gifts to heirs.
Because the assets are owned by the trust, the grantor’s personal assets are generally shielded from creditors and lawsuit judgments. This fact allows the grantor to reduce the amount of property that is counted against him or her when it comes time to apply for government benefits like MassHealth.
The loss of control and inflexibility of irrevocable trusts are their most obvious downsides. These features make it more difficult for a grantor to adapt to major life changes like incapacity or remarriage. Additionally, a separate tax return must be filed for the irrevocable trust.
Contact Our Middlesex Wills and Trusts Attorney
Your life could change in the blink of an eye, so be sure you are protected with a strategy for what happens to your family and your assets. Drafting a last will and testament and a trust is the best way to get started. Reach out to the experienced estate planning team at LaFountain & Wollman P.C. Give us a call today to schedule your initial consultation.