What You Should Know about Wills and Trusts
Wills and trusts are important tools that can help ensure your wishes are carried out. Here’s a rundown of what you can use each one to accomplish.
A surprising 55% of Americans don’t have a will, but they are critical documents because they allow you to establish how your assets are handled after you die. If you don’t have one, state laws will determine who gets your assets and your heirs may face delays and expenses in trying to get their inheritance. Key facts to know about wills include:
- They don’t have to cost a lot of money to create. There are numerous online and other sources that help you write your own valid will. It may be wise, however, to consult an attorney to be sure the document is complete and effective.
- Writing a will includes selecting an executor, someone who is in charge of distributing your assets and making sure your wishes are carried out. Inform your chosen executor that he or she has been named in your will so that they have a chance to understand their responsibilities.
- Identify who gets what. Be specific about the person (or, perhaps, charity or other nonprofit) who will inherit and precisely what they will receive.
- If you have minor children, you can use a will to name someone who will act as their guardian in case you die. Once again, be sure to discuss this choice with the guardian to be sure they are able to care for your children. If you don’t name a guardian, the court will appoint one.
- The will must be signed by you and two or three witnesses, depending on your state. Some states may also require that the will be notarized.
- Wills should be kept up to date. You may want to update your will after significant events such as a marriage, divorce, the birth of a child or death of a family member
People use trusts to transfer assets to designated beneficiaries either during their lifetimes or after their deaths. In the meantime, the assets in the trust are held by a trustee, such as a financial institution or other trusted source. Important details about trusts include:
- The assets you place in a trust can include cash, investments or real estate, as examples.
- You can use a trust to make rules about how or when your assets are distributed. For example, to prevent your children from receiving their entire inheritance when they are still young, you might set up a trust to ensure that the money or other assets are distributed to them beginning at a certain age or over time.
- There are a number of different types of trusts designed to meet different goals. Among other objectives, you can set up trusts that set aside money for various heirs. For example, a generation-skipping trust could include money for your grandchildren, while a qualified terminable interest property could allow your spouse to receive interest or earnings on an inheritance that will ultimately go to your children once your spouse dies.
- Trusts may offer opportunities to minimize estate taxes.
- They can help you avoid probate, a sometimes-lengthy legal process associated with wills. Your beneficiaries generally have access to their inheritance at the time designated in the trust.
- Trusts can be expensive to set up, however. Your CPA or attorney can help you decide which option is best for you, and whether a will can accomplish your goals.