When you think of creating an estate plan you likely think of a Last Will and Testament. While your Last Will and Testament will undoubtedly serve as the foundation for your comprehensive estate plan, it should not be the sum total of your plan. On the contrary, a variety of estate planning tools and strategies may be incorporated into your plan in order to achieve all of your estate planning goals and objectives. Although no two estate plans are identical, one of the most common additions to the average estate plan is a trust. Before you can decide if adding a trust to your estate plan is right for you though, you need to understand how Wills and trusts work together in your overall estate plan.
What Is a Last Will and Testament?
A Last Will and Testament is a legal document that allows you to accomplish several important estate planning objectives. First, it allows you to gift assets to beneficiaries. Your beneficiaries may be people or entities, such as your church. Your Will also allows you to nominate a guardian for your minor children in the event one is ever needed. In fact, your Will is the only opportunity you will have to let a judge know who you would pick to care for your children if you are no longer here to do so yourself. Finally, you will appoint someone as the Executor of your estate in your Will. The Executor is the person who will oversee the administration of your estate after you are gone.
What Is a Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Maker or Grantor, who transfers property to a Trustee. The Trustee holds that property for the beneficiaries of the trust. Though you may not realize it, you likely enter simple trust agreements on a regular basis. For instance, imagine that your sister asked you to hold onto a chair she bought at auction until your mother can make it back from out of town to take possession of the chair. In that case, your sister is the Settlor, you are the Trustee, and your mother is the beneficiary of the trust.
Testamentary vs. Living Trusts
All trusts are broadly divided into two categories – testamentary and living (formally referred to as “inter vivos”) trusts. A testamentary trust is one that does not become active until the death of the Settlor, the person who created the trust. A living trust, on the other hand, will become active as soon as all the formalities of creation are satisfied and funding is established for the trust.
What Your Will Cannot Do for Your Estate Plan
A Will has several important limitations, which is why so many people turn to trusts when creating their estate plan. A Will, for example, only allows you to make direct and immediate gifts to a beneficiary. If you have minor children, that can be a problem. Even if you prefer to stagger the inheritance you plan to leave your beneficiaries, a Will does not allow you to do that. A trust, however, can help with both of these situations. A trust can hold, protect, and even grow the assets you leave behind for your children while they are minors. A trust also allows you to make staggered gifts to those children (or other beneficiaries) instead of handing a beneficiary a lump sum of money that he/she is not prepared to manage.
Trusts can also help you with other, specialized, estate planning components such as incapacity planning, Medicaid planning, and special needs planning. For example, a living trust works as an incapacity planning tool by allowing you to create the trust and appoint yourself as the Trustee of the trust. You then appoint the person you wish to take over control of your assets, should you become incapacitated, as the successor Trustee and then transfer major assets into the trust for you to manage as long as you are able to do so. The successor Trustee takes over for you in the event of your incapacity, providing a simple and effective incapacity planning tool.
Wills and Trusts in Your Estate
The type of trust you create, and the purpose it serves in your estate plan will depend on your unique needs and goals for your estate plan. Talk to your Florida estate planning attorney about the best way to incorporate a trust into your estate plan so that it works in conjunction with your existing Will.
If you have additional questions about wills and trusts and how they work in your estate plan, please contact the experienced estate planning attorneys at Kulas & Crawford. by calling 772-398-0720 to schedule an appointment.