Understanding Estate Planning
Wills and Trusts
Wills and trusts are created to distribute an estate after death or in some cases, before. Trusts are different than wills and are not meant to replace a will. Most trusts deal with specific assets or property, and there are generally two types: private and charitable. Private trusts benefit people named as beneficiaries, while charitable trusts provide benefits to organizations supporting philanthropic causes.
A trust can be an effective estate planning tool
Throughout your life, you have worked to protect and provide for those you care about, and adding a trust to your estate plan helps you to do just that. With it, you can manage your assets during your life and preserve them until it is time to pass them on to your heirs.
Trusts can make it easier to transfer wealth to your heirs. Wills must be validated by a probate court – a process that can be expensive and time-consuming. Trusts aren’t subject to probate, so you can maintain a greater degree of privacy, reduce settlement costs, and possibly decrease estate taxes.
The more flexibility a trust has, the fewer the tax benefits. Revocable trusts can be changed or even canceled, but they don’t reduce the income tax you owe on appreciating assets while you’re alive, and they don’t reduce possible estate or inheritance taxes after you die. Irrevocable trusts, on the other hand, provide significant tax savings because all control over property put into the trust is surrendered when the trust is created so increases in value aren’t considered part of your estate. However, property or beneficiaries can’t be changed except in certain very limited circumstances. The table below summarizes the differences:
- Talk with a trusted attorney or financial advisor about wills and trusts
- Create an estate plan that establishes your priorities.
- Use the resources to the right to guide your thinking and begin your search for answers.