Planning for your future involves taking measures to direct the management of your belongings upon your death or incapacitation. Known as estate planning, certain actions and documents help you control the division of your assets. While a last will and testament works well for some individuals in certain situations, revocable living trusts may provide additional benefits in helping you to manage your estate.
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Last Will and Testament
Your last will and testament, commonly referred to as your will, is a written document that specifies how you want your property distributed when you die. Wills can include various clauses and information, depending on your personal situation. Some wills include information on burial instructions, guardianship for minors and other dependents, as well as the allocation of assets. You can change this signed and witnessed document as you see fit, destroying old copies when you create new original wills.
While wills provide instructions for actions when you die, revocable living trusts supply provisions for management during your lifetime, as well as after your death. Be aware that an irrevocable trust provides a permanent reallocation of your assets. Your living trust serves as a separate entity, allowing you to transfer assets in your name over to your trust. When properly executed, a living trust can help you avoid probate, a legal process overseeing the administration of your estate, according to the Federal Trade Commission. Revocable living trusts often include pour over wills, documents that provide for any assets not placed into the trust.
While probate procedures may vary depending on state laws, owning assets in your own name at the time of your death means your estate must go through probate. This occurs regardless of whether you had a will at the time of your death. If you die without a will, the laws of your state will determine what happens to your property and your minor children. During probate, your personal representative must perform a series of responsibilities including filing your will, taking inventories, paying debts and distributing assets.
Living trusts have some advantages over wills, although wills are usually simpler and less expensive to create. Consider using an irrevocable trust only when you are certain you won’t change your mind about the assets you transfer into this type of trust. A revocable living trust allows you to designate a trustee to manage your affairs when you can no longer oversee your assets. It also helps your estate avoid the probate process, often simplifying things for your family after your death.