Wills and Trusts are useful estate planning solutions that specify who will receive your property and who will manage and direct these distributions. Almost everyone is familiar with the terms “will” and “trust,” but few fully understand how these documents work and what are the main differences between the two. An important distinction between a last will and a trust is that the will goes into effect only after you pass away, with any distributions taking place months or in some cases even years after the grantor has passed away. On the other hand, a trust can be effective from the day it is signed, and distributions can take place at any time during the grantor’s lifetime or after it.
Working together, these two types of documents can be used to create a tailored succession strategy that fits your needs. Below you will find other important information regarding Wills and Trusts.
Estate planning means having in place a strategy to protect wealth during peoples’ lifetimes as well as preserving assets after they pass away. It also means naming trusted loved ones who will be responsible for making decisions for you in the event of incapacity and managing the assets in your trust or estate after your lifetime. A comprehensive estate plan should also factor other needs like protecting more vulnerable beneficiaries such as minor children or persons with special needs.
It is better to think of estate planning as an ongoing process that can pave the way to an orderly transition as we age and face the everyday uncertainties of life. Your estate plan is not only about your wealth and assets but can reflect your values as well. You can devise a succession plan to benefit charities of your choice and establish lasting arrangements to help others.
A last will and testament is a written declaration of who you would like to receive your property and, if applicable, who you want to raise your minor children when you pass away. If you pass away without drafting a will the default laws of the state where you live in at the time of your passing will govern the distribution of your property. This means the probate court will divide the estate property without any input from you.
Only a probate court can administer a last will, and probate proceedings can be costly and lengthy legal proceedings which diminish the amount of funds left in the estate for the beneficiaries. That is why we generally recommend clients use a trust to manage their property. However, the last will and testament provides important provisions in case any property has been left out of trust. It works with a Trust by instructing that your estate property be distrusted to your revocable living trust for management.
A revocable living trust is a written declaration of who you would like to receive your property at your passing. A revocable living trust is a private document which allows you to pass property without the delays, cost, and publicity of probate. You can make changes to or revoke the revocable living trust at any time during your lifetime. As a grantor, you (and your spouse or significant other, if you decide to form a joint Trust) can hold the position of trustee. This means you retain the ability to control and manage any assets in the trust as you see fit. When you pass, the trust will become irrevocable, and the person designated as successor trustee will take over management of trust property.
In general, trusts are a way to help in the orderly transfer of assets after one passes, such that the property can be passed down to the beneficiaries without the need for a court process and the accompanying fees, delays, and potential conflicts between heirs.
A living trust is one of the most effective ways to avoid probate. The reason why a living trust does not go through probate is because through the creation of the trust and funding it with assets, the trust becomes the legal owner of the asset. Thus, after the grantor of the trust dies, the trust still lives on after they have passed.
In order to create a trust that can successfully avoid probate, the grantor draws up a trust agreement with the terms of the trust. This will include appointing a trustee to manage and administer the trust. The grantor will then move assets into the trust.
The trust then becomes its own separate entity. The trustee technically has ownership of the property since it is the trustee who can make decisions as to how to invest and dispose of trust assets. While the grantor is alive, the trustee is a fiduciary to the grantor and must manage the property in their interest.
Probate is the process where ownership is transferred. Because the trustee has ownership of the property, the trust maintains that ownership after the grantor dies and there is no probate process that is necessary to complete any ownership transfer. A Colorado probate attorney can assist you in establishing a trust that can help assets stay out of probate.
A durable power of attorney grants someone the legal ability to make decisions on your behalf at certain times and for specified purposes. A durable power of attorney means that the power of attorney remains valid in the event that you become incapacitated. Many people are familiar with the term “power of attorney”, it simply means a trusted person who is entitled to act in place of someone else. And while the person you name as power of attorney should be aware of what your wishes and expectations are, they do not need any legal training or experience.
A durable financial power of attorney will enable another person to make financial transactions on your behalf if and when you are no longer able to make sound decisions. The person you appoint will have control over as many aspects of handling financial matters as the power allows. This can mean paying your debts, investing money, or taking steps such as depositing social security checks. In turn, the agent will have a fiduciary responsibility to act in your best interests when making any financial decisions. This is extremely important given widespread patterns of financial abuse of seniors. The elderly are vulnerable to being taken advantage of, and it is vital to institute safeguards to provide them with protection. A durable financial power of attorney can act as an agent for whatever transactions are specified by the instrument that gives the agent the power.
A durable medical power of attorney will have a similar spirit and intent, but will cover healthcare and medical decisions. Even if you are unable to make informed decisions concerning your health care, your health care agent designated in the medical power of attorney is instructed to discuss with you the specifics of any proposed medical care or treatment. To be clear, your power of attorney can put some parameters on the decisions that your agent makes, but they are ultimately making the choices for you. With a durable power of attorney, the agent will be in contact with your medical professionals and will work in tandem with them to make all necessary medical decisions as the need arises.