Last week I defined the main 3 documents created to complete your Estate Plan. This week lets pretend you are all set up. How do these documents work?

1. Last Will and Testament: When you die, your attorney will pull out this document and give it to the executor (remember the boss of the will), so that person can move forward with your estate distribution. The will controls things without beneficiary designations. Your life insurance, your retirement accounts (401(K), IRA, Roth, etc) will pass according to your beneficiary designations. You fill these out when you set up your accounts and often they have a primary beneficiary, and a secondary beneficiary. If the primary beneficiary passes before you, or just doesn’t want the funds for whatever reason, then the account will go to the secondary beneficiary. Another way things pass without the will is through the title. If you are married, you likely own your house joint with right of survivorship. This means if one of you dies, the other person gets the entire property. Real Estate, Cars, Boats, etc. all have titles and can pass according to that title if titled correctly.

The will needs to be Probated. Probate is the process of which the executor and the state divide your estate. Some states, like Florida, have long and expensive probate periods. Once probate is complete, your will is public record. Anything you wrote in there, people can see. That is why when famous people die, often their wills are in the Newspaper. A reporter wasn’t tricky or sneaky getting these documents, it is public record. To avoid all of this, it is best to keep as much out of your Will and your estate as possible. 1. For privacy 2. To avoid a lengthy probate. How do you do this?

2. Trusts: 2 ways to avoid the will and probate are listed above (beneficiary designations and titles), but the reason all those super rich and famous people have such tiny estates when their wills are published in the news is because they likely set up trusts.

Trusts are technically NOT estate documents. They are contracts. Contracts are private. You are the grantor of your trust, you will have a trustee (trust boss), and beneficiaries of that trust. The main two types of trusts are revocable and irrevocable. The revocable trust you can create while you are living and change it whenever you feel like it, then it becomes irrevocable at your death. The irrevocable trust you can create now, but it cannot be changed. These documents will tell your trustee how to distribute the assets you have put into or designated for that trust.

How do you put something in a trust? You change the name on the accounts from your name to the trusts name. The trust becomes similar to a person in legal status. It can own property whether real (like your house) or other property (like bank accounts, stocks, life insurance, etc.). You can change the title on your house to your trust, make the trust beneficiary of your life insurance, or retirement accounts (be careful with this one it can have major tax implications if done incorrectly). Just like there are many different kinds of contracts, there are many different types of trusts within these 2 categories, but the over all goal is the same, avoid probate, transfer assets efficiently, reduce tax implications, and privacy.

Many people believe trusts are not super important any more, because President Trump created an estate tax exemption that far exceeds what most people have in their estates. If as an individual your estate is less than $11.4 million ($22.8 million for a couple) then you will not be taxed. The estate tax is just one factor. With a trust, you maintain what we call dead hand control. You have the ability to control distribution to your family and charity after death. Basically, avoid giving your 18 child all your assets out right, without any knowledge on how to manage adult finances, OR if you were to pass and your wife marries the pool boy, keeping your assets for only her and your children, not funding the pool boys crazy life style. Yes, these are extreme examples, but you can see where I am going with this.

You can see the value of a financial planner in this process when you start getting into the complexity of trusts.

Next week we will discuss how to set all of this up efficiently and effectively.