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WILL OR TRUST? WHICH DO I NEED? You need to do your estate planning, but you are not sure what you need. Where do you start? Perhaps the best place to begin is with definitions and an understanding of the purpose and objectives of estate planning. At its most basic level, your estate plan is a plan to manage your wealth while alive and handle the distribution of your wealth upon your death. The objectives are to get the maximum enjoyment from your assets during your lifetime, distribute your assets to the people you have chosen upon your death, avoid excessive attorney and court costs associated with probate, and minimize death taxes. Two of the most widely prepared estate planning documents are the will and the revocable living trust. How do you know which one you need? What are these documents and what are the advantages and disadvantages of each? A will is a simple and inexpensive document that controls the disbursement of your assets upon your death. A will does not control assets owned by a trust or assets with a designated death beneficiary such as joint tenancy assets, life insurance and retirement plans. A will sets forth your wishes with respect to the passing of your property upon your death. It also allows you to select the personal administrator who will pay off debts and expenses of last illness as well as make funeral arrangements and distribute your property to the appropriate beneficiaries. Furthermore, it gives those that inherit a full step-up in tax basis in property, and ensures that creditor claims are paid after appropriate notice. However, a will requires a court proceeding with the attendant costs if your personal property or your real property totals more than $50,000 in value. A will can be contested, requiring even greater attorney and court costs. In addition, your estate will be taxed if your total estate, including life insurance proceeds, exceeds $2 million, as of January 1, 2006, if appropriate estate tax planning is not done. A revocable living trust is a formal trust document designating a grantor/ trustor, trustee, and beneficiaries. Married couples with a living trust can eliminate or substantially reduce estate taxation upon the death of the second grantor/trustor for combined estates larger than $4 million as of January 1, 2006. There is no required court proceedings to probate your assets, and the trust property still receives a full step-up in tax basis at the time of your death. A trust also allows for a successor trustee to manage your property while you are alive but incapacitated. A trust is generally more expensive than a will, but less that the cost of probate, and a more complicated document than a will. In addition, assets must also be re-titled to the trust to make the trust effective. A trust is not for everybody, but should be considered as an option. Whether to have a will or a trust is a decision that should always be made with the assistance of an experienced estate planning attorney. It is also a decision that should not be put off. As has been said, there are only two certainties in life: death and taxes!
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