Estate Planning for Beginners: Wills and Trusts

Every new project has to begin somewhere, and most newcomers to estate planning choose to begin with a will and a trust. This is because wills and trusts form the foundation for how your property will be distributed, how your heirs will be cared for, and how the probate process and estate taxes will be handled.

A will is the most well-known of all estate planning documents, it is generally the simplest and easiest to create (although some wills can be very lengthy and complex), and in most states a will can contain within it instructions for peripheral topics such as guardianship of minor children or the final disposition of your remains.

But everybody knows that the main purpose of a will is usually to dispose of your assets and effects. In its most basic form, a will should include these important parts:

• The testator’s (creator’s) name and crucial information
• Nomination of an executor to carry out the wishes of the testator
• The naming of the beneficiaries
• Instructions as to how the estate should be distributed to the beneficiaries
• Signature of the testator and the date signed
• Signature of witnesses and the date signed

As mentioned above, this is a will in its most basic form, but in fact most wills will also contain instructions for probate, instructions regarding the payment of debts and taxes, the names of any organizations to receive charitable distributions, a mention of relatives who may purposefully NOT have been named, and more.

Because a will can be so basic, many people believe that a will can easily be created on one’s own, without the help of an estate planning professional; in fact, there are plenty of companies who offer “Do It Yourself” will creation software for a fee. However, it is important to understand that while a will itself can be very simple; the federal and state tax and probate laws are rarely so. If you feel your estate is small and your wishes are modest then by all means keep your will short and sweet as well. However, we strongly urge ALL of our readers (even those with small and simple estates) to have an estate planning professional at least review your will and advise you as to its validity before you sign it and tuck it away.

In addition to a will many families will choose to also create a trust. We’ve said it before on our blog and we’ll say it again: It doesn’t matter whether you’re a billionaire business executive or a teacher with a modest salary, it doesn’t matter whether you’re the patriarch of a large family or a stay-at-home mom of a newborn, a revocable living trust may be exactly what your family needs to protect their assets and their best interests. This is because a trust is probably the most comprehensive and versatile tool in your estate plan, and is a key part of helping you accomplish your goals.

There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. Logically enough, an irrevocable trust cannot be changed once it has been signed. The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.

The specifics of your trust will vary greatly depending on what you hope to accomplish. Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to the guardians as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.

A trust, much more than a simple will, allows the grantor far greater control over their assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.