Estate planning affords you the opportunity to ensure your money continues to sustain your family’s needs after your passing. Unfortunately, estate planning is perplexing for many, and making one wrong choice can mean the difference between financial security and economic disaster for your loved ones. Understanding your options and smart planning can help to ensure that your money supports your family long after your departure.
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A will is a written legal document, signed and witnessed, that conveys your instructions for the distribution of your real and personal property amongst your beneficiaries after your death. A will is a powerful tool that you can also use to appoint an administrator for your estate -- called an executor -- and name a guardian to retain custody of your children in your absence.
A living trust, formally known as a trust inter vivos -- literally, “among the living” -- is a trust created during your lifetime to manage your personal assets. Living trusts are commonly used by individuals who hold considerable assets, as it allows the owner to control all of his assets at once while taking advantage of certain tax breaks. A trustee manages living trusts, and is a position you can assume yourself and legally transfer to someone you trust after your passing.
The most notable benefit of a will is the ease and affordability of establishing one: anyone can create a will, and there are little-to-no upfront costs. A will also allows you to ensure your minor children are physically cared for in your absence, provide instructions for funerary arrangements and convey other wishes not explicitly related to the administration of your estate. Living trusts afford you more control over assets and allow you to provide financially for your family. Done correctly, a living trust may save you and your loved ones a considerable amount in estate taxes, ensuring your family receives the most money possible after you are gone.
Choosing a Living Trust or Will
If you cannot afford to spend a lot of money on estate planning and your estate’s total net worth is less than $1 million, a will is generally the preferable option. If you have a minor child, only a will allows you to arrange for her care and financial support if both you and your spouse die, and you can still establish a trustee to manage your child's inheritance until she reaches a certain age. If you own a small business, you can also arrange for ownership and management through your will. If your estate is a little more complicated, you hold a considerable number of assets or your worth exceeds federal estate tax exemption limits, a living trust may be the better choice. If you have no children, or your children are grown, you can still provide them with financial support through a living trust. If you own a large business or multiple businesses, a living trust is a good way to manage all of your professional interests while still maintaining your privacy from the general public. If your needs cross somewhere in the middle, consider establishing both a will and a living trust. You can use your will to provide physical care for your spouse or partner, minor children and other relatives, and create a trust to manage and distribute your assets and the revenue it continues to earn after your death.