ESTATE PLANNING

ESTATE PLANNING

WILL AND REVOCABLE TRUSTS

IMPORTANCE OF ESTATE PLANNING

The estate planning process allows you to decide how your assets will be distributed after your death. Without a plan, your estate may be subject to probate court, which could lead to unforeseen complications, delays, and possible disagreements. Moreover, estate planning isn't just about the distribution of assets, it's also about ensuring your loved ones' well-being and securing your own peace of mind. 

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→ Why are wills and trusts important in estate planning?

Wills and trusts are crucial as they allow you to maintain control over what happens to your assets after your death. They provide a legally binding plan for the distribution of your assets to the intended beneficiaries, reducing potential disputes among family members. Moreover, they allow you to appoint guardians for minor children, specify last wishes, and potentially minimize estate taxes.

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→ Can I have both a will and a trust?

Yes, you can certainly have both a will and a trust. In fact, this is quite common in estate planning. A will can cover any property that is only in your name when you die, while a trust covers only the property that has been transferred into the trust. Having both allows you to have a more comprehensive estate plan.

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→ Can I manage my estate without a will or trust?

Technically, yes, but it's not advisable. Without a will or trust, your estate will be distributed according to the intestacy laws of your state. This means you have no control over who receives your assets, and the state's decisions may not align with your wishes. Moreover, it may lead to a long, costly process and potential conflicts among heirs.

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→ What happens if I have neither a will nor a trust when I die?

If you die without a will or trust, you are considered to have died 'intestate.' In such cases, the state laws dictate how your property is distributed. Generally, your assets will go to your closest relatives, starting with your spouse and children. If you have neither, your assets may go to other relatives, such as siblings, nieces, nephews, or even distant relatives. If no relatives can be found, your assets will go to the state.

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→ What are the costs involved in setting up a will or trust?

The costs can vary greatly depending on the complexity of your estate and your geographic location. Generally, setting up a will is less expensive than setting up a trust. A simple will might cost a few hundred dollars to draft with a lawyer, while a trust, due to its complexity, could cost a few thousand dollars. However, trusts can also save money in the long run by avoiding probate court, which can be costly.

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CHOOSING A WILL OR TRUST

The choice between a will and a trust depends on several factors. A will is a relatively straightforward document that directs who will receive your property upon your death and appoints a legal representative to carry out your wishes. On the other hand, a trust is a legal entity that holds and distributes your assets during your lifetime or after death. Trusts are often used for larger estates or when there are complex distribution plans. They offer more control over when and how your assets are distributed but require more effort and cost to set up.

→ What is the main difference between a will and a trust?

The key distinction between a will and a trust lies in their operative timeline and the process of asset distribution after death. A will only comes into play after your death and necessitates a process called probate - a legal procedure to validate the will before the distribution of assets. A trust, conversely, is active the moment it's established and assets are moved into it. In the event of death, a trust allows for the transfer of assets bypassing the probate process, which can expedite the distribution and potentially reduce associated legal expenses.

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→ Which is better for me - a will or a trust?

The choice between a will and a trust depends on your individual circumstances. If you have a smaller estate, a will may be sufficient. But if you have a larger estate or specific distribution requirements, a trust might be preferred. A trust can also provide privacy, as it's not a public document like a will. It's best to consult with an estate planning attorney to understand which is most suited to your unique needs.

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→ How does a will or trust affect my estate taxes?

Both wills and trusts can be structured to minimize estate taxes, but the strategies used will differ. Certain types of trusts, such as a bypass trust or a marital trust, can be particularly effective in reducing estate taxes. Wills can also include tax planning provisions. It's important to note that estate tax laws are complex and frequently changing, so it's advisable to consult a professional for the most current and relevant advice.

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→ Can a will and a trust be used in conjunction with each other?

Absolutely. Many people use a “pour-over” will in conjunction with a trust. The will acts as a safety net, "pouring over" any assets not included in the trust at the time of your death into the trust. The assets in the trust can then be distributed according to your wishes outlined in the trust document.

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→ Can a trust help me avoid probate?

Yes, one of the main advantages of a trust is that it can help you avoid the probate process. Assets placed in a trust are transferred directly to your designated beneficiaries upon your death, without the need for court involvement. This can save time, legal fees, and maintain privacy.

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→ Is a will or trust more suitable for a small estate?

Generally, a will is often sufficient for smaller estates. Creating a trust can involve more upfront costs and ongoing management than a will. However, if avoiding probate, maintaining privacy, or managing distribution of assets over time is important, a trust could be worth considering, regardless of the size of the estate. It's best to discuss your situation with an estate planning professional to make an informed decision.

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DESIGNATING BENEFICIARIES

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Beneficiaries are the individuals, organizations, or entities that you designate in your will or trust to receive your assets. It's crucial to be specific when naming your beneficiaries to avoid any potential confusion or dispute. For instance, instead of saying 'my children,' list their full names. Remember to update your beneficiaries if circumstances change, such as a birth, death, marriage, or divorce.

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→ Who can be named as a beneficiary?

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Almost anyone can be named as a beneficiary in a will or trust. This includes family members, friends, organizations, or even entities such as a charity or a school. A beneficiary does not have to be a U.S. citizen or resident. However, there are some restrictions - for example, the person drafting the will or trust (the testator or grantor) cannot name themselves as a beneficiary of the trust.

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→ What happens if my beneficiary predeceases me?

If a beneficiary dies before you, that person's share of the estate will typically be distributed according to the terms of your will or trust. If you didn't specify what should happen in this circumstance, the share will likely be divided among the remaining beneficiaries. To avoid confusion, it's advisable to include alternate beneficiaries in your documents.

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→ Can I change my beneficiaries after my will or trust is established?

Yes, you can change your beneficiaries after your will or trust is established. For a will, this would usually involve creating a new will or adding a codicil to an existing one. For a revocable trust, you can typically amend the trust document to change beneficiaries. However, beneficiaries of an irrevocable trust generally cannot be changed unless all parties (including the beneficiaries) agree.

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→ Can a beneficiary refuse an inheritance?

Yes, a beneficiary has the right to refuse an inheritance, a process known as "disclaiming" the inheritance. If a beneficiary chooses to do this, they will not have any say in who will ultimately receive the inheritance. Instead, the asset will go to the next beneficiary in line, as defined by the will, trust, or by state law.

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→ Can I name a charity as a beneficiary?

Yes, you can certainly name a charity as a beneficiary in your will or trust. This can be a way to support a cause that matters to you after your death. Keep in mind that charitable bequests may also offer tax advantages for your estate.

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→ Can a beneficiary be a minor?

Yes, a minor can be named as a beneficiary. However, minors usually can't legally take control of their inheritance until they reach the age of majority (which is typically 18 or 21, depending on the state). If you want to leave assets to a minor, consider establishing a trust and appointing a trustee to manage the assets until the minor reaches a certain age.

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GIFTS & BEQUESTS

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Gifts and bequests refer to specific items or sums of money that you leave to individuals or organizations in your will or trust. You could leave your home to your spouse, a treasured piece of jewelry to a dear friend, or a financial gift to a charity close to your heart. It's important to describe these gifts in detail to ensure your exact wishes are followed.

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→ Can I leave gifts or bequests to anyone I choose?

Yes, you have the freedom to leave gifts or bequests to anyone you like, including family, friends, and charitable organizations. It's important to remember, however, that certain large gifts may be subject to estate or gift taxes. 

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→ What happens if the recipient of my gift or bequest dies before me?

If a recipient predeceases you, the gift or bequest typically reverts to the estate and is distributed according to the terms of the will or trust. You can prevent this by including a contingency plan in your documents, such as naming an alternate recipient or specifying that the gift should be distributed among the recipient's heirs.

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→ What is the difference between a gift and a bequest?

A gift refers to an asset you give during your lifetime, while a bequest refers to an asset you leave to someone in your will or trust to be received after your death. Gifts given during your lifetime may have tax implications if they exceed the annual gift tax exclusion amount.

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→ Can I specify conditions for my gifts or bequests?

Yes, you can specify conditions for gifts or bequests, but they must be legal and not against public policy. For example, you can leave a certain amount of money to a grandchild, provided they graduate from college, but you cannot incentivize illegal activities.

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→ Can gifts or bequests affect eligibility for government benefits?

Yes, gifts or bequests can affect eligibility for certain government benefits, particularly those that are means-tested like Medicaid or Supplemental Security Income (SSI). Receiving a significant gift or bequest can disqualify a beneficiary from these programs. If a potential beneficiary relies on such benefits, you might consider setting up a special needs trust to avoid this issue.

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→ Can a gift or bequest be contested?

Yes, gifts and bequests can be contested, typically during the probate process. Grounds for contesting might include claims that the will or trust was executed under duress, that the decedent was not of sound mind when the documents were signed, or that the documents are fraudulent. It's crucial to ensure your will or trust is properly executed and witnessed to minimize the risk of successful contests.

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TYPES OF TRUSTS

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There are many types of trusts, each serving different purposes. For instance, a revocable living trust can be altered during your lifetime, allowing you flexibility. An irrevocable trust, however, cannot be changed without the consent of the beneficiaries, providing a greater level of asset protection. There are also charitable trusts, special needs trusts, and others, each designed to address specific estate planning needs.

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→ How many types of trusts are there and what are they?

There are numerous types of trusts, each designed to address specific estate planning goals. The most common types include:

• Revocable Trust: Can be altered or canceled during the grantor's lifetime.

• Irrevocable Trust: Cannot be altered or canceled without the consent of the trust's beneficiaries.

• Charitable Trust: Designed to benefit a particular charity or the public good.

• Special Needs Trust: Designed to benefit individuals who are physically or mentally disabled.

• Testamentary Trust: Created through a will and becomes effective upon the grantor's death.

• Life Insurance Trust: Specifically holds a life insurance policy and receives the policy payout upon death.

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Learn more → "The different types of Trust: How they differ, and what they mean for you"

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→ Can I establish more than one type of trust?

Yes, it's possible and sometimes beneficial to establish more than one type of trust, depending on your specific circumstances and goals. For instance, you might set up a revocable trust to avoid probate and a separate special needs trust to provide for a disabled family member.

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→ What is the difference between a revocable trust and an irrevocable trust?

The primary difference lies in the level of control you maintain over the trust after its creation. A revocable trust allows you to retain control, meaning you can alter, amend, or terminate the trust during your lifetime. An irrevocable trust, once established, cannot be changed or terminated without the consent of the beneficiaries. This difference also impacts how the trusts are treated for tax purposes and asset protection.

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→ Can I create a trust for a specific purpose, such as education or charity?

Yes, you can create a trust for a specific purpose. An educational trust, for example, is set up to pay for education expenses for the beneficiaries. A charitable trust is set up to benefit a specific charity or cause. These trusts are governed by specific tax laws and regulations.

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→ What is a special needs trust and when is it used?

A special needs trust is used to provide financial support for a person with disabilities without jeopardizing their eligibility for government benefits like Medicaid or Supplemental Security Income. The trust can cover costs not covered by these programs, such as recreation, personal care attendants, and out-of-pocket medical and dental expenses.

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→ How does a charitable trust work?

A charitable trust is set up to benefit a particular charity or the public good. The grantor places assets into the trust, which reduces the taxable estate and may offer immediate tax benefits. Upon the grantor's death or after a specified period, the remaining assets go to the designated charity. There are two main types: Charitable Remainder Trust (CRT) provides a stream of income to individuals first, then the remainder to the charity; and Charitable Lead Trust (CLT) provides income to a charity first, then the remainder to individuals.