Caring for your family’s financial well-being after your death is considered smart planning.
But it takes legal planning as well. Creating a will and/or trust is the most common way of safeguarding your savings and assets for your loved ones.
Attorney Seamus Smith with Creative Planning spoke with The Leaven about how to sort out necessary steps.
Q. What is a trust?
A. A trust is a legal agreement that essentially holds all your assets (savings, stocks, property). The trust agreement identifies the names of two important roles — the trustee and the beneficiary. The trustee controls the assets as directed by the trust agreement. The beneficiary receives the trust assets as directed by the trust agreement.
Q. Are there different kinds of trusts?
A. There are many types of trusts for different purposes. The most common type of trust is a revocable trust. A revocable trust is used for estate planning.
The person creating the trust generally names himself or herself as the initial trustee and as the initial beneficiary and retains full control of the trust and all of its assets.
Q. Who needs it?
A. A revocable trust is a useful tool for anyone who wants to avoid probate, structure inheritances for beneficiaries and address estate taxes.
Q. How is a trust funded?
A. Assets can be titled directly to a trust. For example, a deed on a home can identify a trust as the owner of the property and a bank account can be titled to reflect a trust as the account owner. Assets can also be directed to a trust through a beneficiary designation, like those used for life insurance and retirement accounts.
Q. Does having a trust eliminate the need to go through probate when a person dies?
A. A properly written and funded trust can avoid the need for probate in most cases.
Q. If you don’t have a trust, what’s so bad about going through probate?
A. There are three primary downsides to probate. First, a probate proceeding can be expensive, due to attorney fees and court costs. This reduces what beneficiaries receive.
Second, probate takes time. In most cases, it will take at least six months but will often run significantly longer.
Finally, there can be a lack of privacy because probate court records are often open to the public.
Q. What is a will?
A. A last will and testament is a direction to the probate court that becomes effective at your death. It tells the court where you want probate assets transferred following your death and who you want to be appointed to administer your probate estate.
Probate assets include any assets that were not incorporated into a trust or directly payable to a surviving adult under a beneficiary designation or right of survivorship. The person appointed to administer the estate is called the executor or personal representative.
Q. Who needs one?
A. All adults should have a last will and testament in case there are any probate assets at the time of death or any matter that requires an executor to resolve. This is the case even if you have a revocable trust. You cannot always predict what probate circumstances might arise following your death.
Q. Are wills and trusts ironclad?
A. A well-written will or trust established under the right circumstances can be difficult, if not impossible, to overturn. A will or trust is more susceptible to being overturned if it is poorly written or was executed by someone with questionable mental capacity or under the influence of an interested party.
Q. Can you create a will and trust yourself or do you need an attorney?
A. An attorney is not absolutely necessary, but like a lot of things in life, it is often best to obtain professional assistance to ensure that it is done right.
Q. Do you need both a trust and a will?
A. Everyone should have a will. A revocable trust should be considered if there is a desire to avoid probate.
Q. How do you choose a trustee for a trust and an executor for a will?
A. Most people will select a friend or family member. It is best if that person is organized and has at least enough financial experience to know when he or she needs to seek help from professionals like attorneys, wealth advisers and accountants.
One important consideration is whether the position will place too much of a burden on the family member or friend. There are a lot of matters to attend to — filing of tax returns, payment of creditors, consolidation of assets and distributions to beneficiaries.
Another consideration is whether there will be any family friction for the person appointed. Death and money can create a lot of treacherous landmines for relationships. In some cases, it can be best to appoint an independent professional trustee to relieve your family and friends from the burden and avoid any risk that the appointment might drive certain family members apart.
Seamus P. Smith leads one of the largest estate planning law firms in America, Creative Planning Legal. He received a B.A. from Benedictine College in Atchison, a Juris Doctor from The University of Kansas School of Law and an LL.M. in Taxation from the UMKC School of Law. Smith has taught business and tax law for the MBA programs of Benedictine College and the University of Saint Mary, Leavenworth. He resides in Overland Park with his wife and daughter and is a member of Holy Spirit Parish.