A will serves to illustrate your wishes for how you want your home, bank accounts and other assets to be distributed after you die. However, there are factors that may prevent some or all of your property from being passed down to your desired heirs. Some of these limitations result from your own actions, while others are completely beyond your control.
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A "simple" will describes the distribution of property among heirs, according to the American Bar Association, or ABA. More complex "testamentary trust" wills divide property into one or more trusts, with named trustees who administer the trusts, and "pour-over" wills that transfer properties into an existing living trust. With each type of will, you may designate an executor, an individual who is responsible for carrying out your wishes according to the will. The executor is also responsible for handling all the final affairs of the estate, including filing your final federal and state income tax returns.
Wills vs. Living Trust
A will cannot protect the privacy of the estate because it is filed with the courts as a requirement of probate, which opens the document to public scrutiny. A living trust, often called "inter vivos," or "within one's life" in Latin, is a revocable document you establish while you are alive that transfers the control of your property to a trustee. Any property that you include in a living trust is not included in a will, unless you revoke the trust before you die. Unlike wills, living trusts avoid probate, which can be a lengthy and expensive process, depending on court backlogs and the complexity of the estate, according to Bankrate.com.
Exclusions From Wills
Along with trusts, several of your other assets and possessions may fall outside the terms of a will. Life insurance policies must name the estate as a beneficiary to be included in a will, otherwise they are excluded. Annuities and retirement benefits are also excluded, although you can name a beneficiary to receive payments after you die. Any property you own with another person with "right of survivorship" automatically transfers to the other owner after you die, according to the ABA.
Settling Financial Obligations
In many instances, the executor must hire an attorney, an accountant or both to handle the final legal and financial affairs of the estate, and pays these professionals from bank accounts and other assets held by the estate. The executor also files the final federal state income tax returns from the deceased, and pays estate taxes, if necessary. The executor also provides notice to any creditors who may have a valid claim against the estate. All financial obligations must be settled from the assets of the estate, and the executor distributes what is left to eligible heirs.