The Basics Of Wills And Trust

Estate planning essentially revolves around various wills and trust types. Let us try to understand the basics of what these tools of estate planning are all about. Well, a will is a legally binding document that directs who will receive your property at your death. It also involves the appointment of a legal representative who will carry out your wishes as laid out in your will.

However, it is important to note that a will only covers probate property. This means that many other types of property are not covered within the purview of the will probate process. Such probate excluded types include properties in trust, life insurance proceeds, 401(k) plans and IRAs (Individual Retirement Accounts), and jointly-owned property.

Why is it important to make a will? Well, making a will is important in the sense that through it you can leave your estate to exactly whomsoever you wish, regardless of who he/she is. In case you choose not to make a will, then after you die, your estate will be distributed among your rightful heirs as per state law and may not match as per your wishes.

The second important reason to make a will is to ensure smooth administration of your estate. With a will in place, the probate process for the transfer of your estate assets is completed quickly and with comparatively lesser expense to your estate than if you were to die intestate. However, it is important that you make your wishes known in your will clearly so that there are less chances of disputes cropping up over who gets what.

It is only through a will that you can appoint the executor of your estate who will distribute your estate according to your wishes expressed in your will. Such a person can manage all the affairs of your estate till your minor children mature in case both you and your spouse die. You can lay out a series of instructions in your will that cover a power of attorney for health care decisions in case you are incapacitated.

A trust on the other hand is a legal arrangement whereby you appoint a person or a legal entity to manage the affairs of your estate on behalf of designated beneficiaries. The rules for the terms of the trusteeship are laid out in complete detail in a legal document known as a trust instrument.

A trust may be used to transfer the estate assets to designated beneficiaries during the lifetime of the estate owner. A trust may be revocable or irrevocable. An irrevocable trust may be used to keep life insurance policy proceeds from being held as estate assets.

The essential difference between wills and trust lies in the latter being a private yet legal process. Normally the latter does not require probate proceedings to be undergone in court like the former does need to.

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