When people hear the term or think about the term “estate planning,” many times what they’re really thinking about is a Will. While a comprehensive and personalized Will is a critical element of estate planning, true estate planning involves the use of several specialized documents that accomplish different goals. Put another way, each part of an estate plan is a different tool for a different job.
The Will is an important part of that toolbox, but its role, though significant, is, in reality, somewhat limited compared to some of the other estate plan documents that provide benefits to you and your family while you’re alive. The Will by definition is really only useful after you have died. Your Will is used by your family to follow your wishes under state law, pay your bills, pay your taxes, make your distributions according to the terms of the Will, and in some cases, establish Trusts under the Will designed to continue for some period of time.
The Will and Its Purposes
Also known as a Last Will and Testament, a Will is a document in which you:
- Designate how you want your property distributed after your death;
- Name a Guardian to care for your minor children (if any);
- Name an Executor or Personal Representative to make sure the terms of your Will are carried out; and
- Provide guidance on your intended distributions, including possible continuing Trusts for certain purposes.
If your estate is substantial and complex, chances are that it must go through probate. Simply put, probate is a court process for the administration of an estate. The attorneys at Reilly Law, PLC can often help our clients avoid or minimize probate and reduce the cost, time, and complexity of estate administration.
Why You Should Have a Will
If you die intestate (without a valid Will), your property will be distributed according to state law which may not have the same priorities as you do. State laws may vary in certain details, but generally speaking your money and property will be distributed first to your closest relatives, beginning with your spouse and/or children. If you are unmarried and/or have no children, your grandchildren or your parents are next in line to inherit from you. After that, state laws generally have a list of increasingly distant relatives to work from including siblings, nieces and nephews, grandparents, aunts and uncles, etc. In other words, you have given up your right to direct distributions where you want them to go if you don’t have a valid Will in place. There is even a risk that the state itself will claim your property. In your Will you can provide guidance on distributions to young adult children to keep them from making poor financial decisions with your money. Or you may have a complex family situation and by not having a valid Will you might unintentionally disinherit family members.
At some point we all have to confront our own mortality, not just in terms of our own fears and beliefs but in terms of how we can protect the loved ones we leave behind. Because life is uncertain, it is best to address such issues as early as possible. A Will and other estate planning documents in place as part of your personal Peace of Mind Plan can be a lasting legacy long after your death.
Trusts and Their Purposes
A Trust is another tool in the estate planning toolbox. When you create a Trust, you are holding assets “in trust” for someone (a beneficiary), or appointing a third party to do so. Once the Trust is created, you, or your appointed representative, becomes the Trustee. The Trustee manages the Trust according to its terms.
We sometimes use the example of a checkbook to describe how a Trust works. Let’s say a Trust is established to benefit 18-year old Alice. The Trust says that Alice can get money for school and other purposes each year but doesn’t get the full Trust fund until her 25th birthday. Alice’s Uncle Ted is named as the Trustee. Uncle Ted, in effect, holds the checkbook for Alice’s Trust and makes payments (distributions) according to the terms of the Trust. It is not Uncle Ted’s money—he is just managing Alice’s money. And while it is Alice’s money (for her benefit more accurately) she cannot have access to it without going through Uncle Ted until she is 25 when she is handed the checkbook and can take the money and run.
We understand that estate planning can be confusing. Here’s one example — a Will can include Trusts, but Trusts can’t include Wills. A Will can include what is known as a “testamentary Trust” that is established by a Will and comes into effect after someone’s death. In the example above, Alice’s Trust could have been established under her father’s Will and became effective at his death.
Types of Trusts
Not everyone needs a Trust but many people can benefit from having one or more in their estate planning toolbox. Trusts can be very complicated and there are many types so you will need an experienced Wills and Trusts attorney like George Reilly to help you explore the benefits of adding Trusts to your plan. Estate planning in general and Trusts in particular are not a do-it-yourself project. The nature of estate planning is such that when you need your plan documents to work they have to—you generally don’t get a second chance to “fix” a document. Unlike a botched DIY project, you can’t just go back to the hardware store to get the right tool. It’s too late.
Trusts are effective estate planning tools and each type of Trust has a particular purpose. The two basic categories of Trusts are revocable and irrevocable. Most of the Trusts we provide for our clients are Revocable Living Trusts that permit the client (called the Grantor or Trustor as the person who created the Trust) to manage the Trust for themselves or appoint someone else to do so for them. They can change the Trust during their lifetime as it is a “living” document, and they can revoke a Trust if appropriate. An irrevocable Trust, as you might imagine, does not generally permit a Grantor to change or revoke the Trust after it is formed and is more restrictive that a Living Trust so it has to serve a particular purpose in a plan. Revocable Living Trusts automatically become irrevocable upon the Grantor’s death and different rules apply.
The advantages of a Revocable (Living or inter vivos) Trust is that, if created and managed properly, it avoids probate and can help to plan for the Grantor’s incapacity. It also maintains your financial privacy — unlike a Will which is a public document. There is no loss of control with a Revocable Living Trust. You maintain control over the funds and other Trust assets during your lifetime.
Once created and signed, irrevocable Trusts generally cannot be altered. This limitation, however, can also be an advantage for some types of plan goals, and can offer some tax benefits. Examples of irrevocable trusts are: Trusts for minors, Charitable Trusts, Medicaid or VA Benefits Qualifying Trusts, Special or Supplemental Needs Trust, spendthrift Trusts,estate tax planning or second marriage Trusts,and Pet Trusts, among others. One or more of these Trusts may be helpful in your particular personal or financial situation.
Other Plan Documents
Other parts of the estate planning toolbox are critical documents in case you become ill, incapacitated, suffer from dementia or have other issues that require others to help you out. Even a family member may not have full authority to act for you unless you provide them, in advance of that need, the legal documents to allow them to help you. These are such things as financial and health care Powers of Attorney, Living Wills/Advance Medical Directives, and guidance on your personal finances. These are all part of both our essential legal readiness plans and our more comprehensive Trust-based Peace of Mind Plans.
Contact Our Fairfax County Wills and Trust Attorney
When you’re working with Reilly Law, PLC you can be sure George Reilly’s professional perspective and empathy will guide you towards making cost-effective and compassionate decisions. Not only is George astute in matters of wills and trust law, but he is also a Certified Financial Planner™, a credential few attorneys share. Why not give us a call or fill out a contact form on our website.