What is a Will?
A Will is a legal document that allows individuals to indicate how they want their assets to be distributed after they die. For a will to be valid, it must be in writing, and it must be signed by the creator in the presence of two witnesses.
There are a few types of wills.
A simple will may be used for estates small enough to avoid probate (See probate.) Moreover, a holographic will serves a similar function to a simple will except it is written in the creator’s handwriting, which must be verified in court. In contrast, a pour-over will is used with a trust to include property in the trust that was not specified in the trust yet was owned by the deceased at death.
What is a Living Trust?
A living trust is another instrument used to distribute assets according to an individual’s wishes. However, there is a large difference between a living trust and a will. A living trust is an actual legal entity that is created by an individual as an asset holder. Once funded, the assets’ titles will transfer from the individual’s name to the trust’s name. But, the individual remains the owner of his or her assets and is able to fully control the assets acting as a trustee, the one in charge of the trust. When the individual passes away, the next indicated trustee will give the individual’s assets to the beneficiaries, the people named by the deceased. Having asset titles in the trust’s name allows the trustee to transfer ownership to the beneficiaries without having to go through probate.
What are the advantages of a living trust?
• Avoid Probate – individuals with estates larger than $100,000 can avoid probate by creating a living trust.
• Provide for your children / special needs children – a living trust allows you to select the person or persons you wish to raise your minor children in the event of your death or incapacitation. Also, you can financially provide for your special needs child through your chosen fiduciary (see special needs trust).
• Pay less taxes – many times the government will take a good portion of an estate with taxes. However, a living trust can minimize the estate and inheritance taxes required by law.
How does a Living Trust fit into an Estate Plan?
A living trust is the cornerstone of estate planning, but estate planning involves much more than a living trust. A complete plan includes:
- Living Trust – with explanation of the trust, funding and maintenance instructions, as well as procedures after death.
- Trust Certifications – proof of authorization to conduct business on behalf of the trust.
- Pour Over Will – (see Wills & Living Trusts: What is a Will?)
- Assignment of Personal Property – used to transfer personal property into the trust that does not have title papers. For example, the assignment of personal property could be used to transfer a television into the trust but not an automobile.
- Durable Power of Attorney – allows you to appoint someone to make decisions for you in the event of your incapacitation. Without the appointment, the court would appoint someone for you to make important decision regarding your financial affairs.
- Health Care Directive – sometimes referred to as a living will. This document allows you to decide give instruction about the kind of medical care you want if you become incapacitated. For example, you can decide if you want artificial life support if you are in a vegetative state, permanent coma, or terminally ill with a short time to live. Also, you can decide if you want pain medication, a feeding tube, or a to be supported artificially for specific length of time.
- Guardian for Minor Children – this nomination is used by the court to appoint a guardian for minor children.
- Preliminary change of ownership report (PCOR) – is a form filed with the county recorder, which satisfies the change in ownership reporting requirements.
- Grant deed to a revocable trust – the new property deed changed into the name of the trust.
- Other Documents – will vary depending on individual situations.
What happens if a person dies without a will or living trust?
If an individual dies without a will or a living trust, the state will decide how to distribute the deceased’s property. The estate enters probate and the court appoints an administrator to oversee the distribution of the deceased’s assets. Once the administrator locates the heirs and creditors, the assets will be distributed according to state law. (see probate for more information)