Estate planning means preparing for possible incapacity and inevitable death. An estate plan can include many different types of documents, including wills and trusts. The variety of tools available will allow for a customized and comprehensive estate plan. There are many benefits to estate planning and there are some myths as well. Here we will dispel 4 common myths about wills and trusts.
MYTH #1: Trusts are only for the rich and elderly
One common misconception is that, if you are young and not too wealthy, you don’t really need a trust. The truth is, everyone has an estate, regardless of wealth, so almost everyone needs a trust. Your estate is made up of your personal property, bank accounts, retirement accounts, life insurance policies, and real estate. All of these possessions can be disposed of through a trust. If you don’t have a trust or will, on the other hand, the probate court will decide who get your property after your death. Even with a will, most estates still must go through probate. Most clients would rather make those decisions for themselves and avoid probate. Creating a trust is the easiest way to do achieve those goals.
MYTH #2: I don’t really have anything to give away
Many clients who have only a few possession, but do not own a home or vehicle, believe they have no reason to create a will or trust. What many clients fail to consider are the personal possessions that may have sentimental value. For instance, who do you want to get your family heirlooms, your wedding ring, your family photos? Something else to consider if you have children is who should be their guardian if you die while they are still minors. The same is true for your pets. If you die without a will or trust, the state will make all of these decisions for you.
Myth #3: Trusts are tax shelters for the wealthy
Contrary to what many people believe, trusts are not tax shelters. Although they do come with certain tax benefits, trusts are most often used to ensure that your family will have the funds they need in the future, once you are no longer there to provide for them. Trusts also help your family avoid the need to go through the probate process. They can prevent the need for a conservatorship, as well, if you ever become incapacitated.
Myth #4: My family will take care of my children if I die
Many people assume that, if they die while their children are still minors, the family that survives them will automatically take them in and care for them. The truth is, if you do not address this issue in your estate plan, a judge will ultimately decide who will raise your children. An impartial judge may not share your family values or religious beliefs, so your views on proper child rearing may not be taken into consideration. If you have a will that identifies a guardian for your children, you can maintain control over your children’s future.
When you need to update your will
After your will or trust has been created, your estate planning is not necessarily complete. With a will or trust, it is just as important to keep it updated. If you get married, divorced, have a child, or one of your heirs dies, it is very likely that you will need to change the terms of your will or trust. They can be modified at any time during your lifetime.
Why you must not forget to fund your trust
Unlike a will, after your trust has been created, there is one more very important step. All of the property or assets that you intend to be controlled by the trust must actually be transferred to the trust. This is known as funding the trust. In most cases it simply means changing the ownership of that property from you to the trust. The specific method of funding your trust depends on the type of assets you are including in your trust.
The benefits of using a trust for incapacity
Incapacity can be the result of an accident or illness. It may also be temporary or permanent. Regardless of the type or cause of your incapacity, a living trust can allow you to plan for the possibility by identifying someone to manage your finances and medical care through an established trust. Trusts also allow your private affairs to remain private, unlike the probate process, which is a matter of public record.
If you have questions regarding wills and trusts, or any other estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.
Timothy P. Murphy
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