Making heads or tails of the estate planning process—and the many documents associated with that process—can be confusing, to say the least. To complicate matters even more, there are many frequently perpetuated myths about wills and living trusts that, if not debunked, could leave you or your loved ones in a compromised position in the future. If you want to be sure that your estate is administered smoothly after you pass, and that your loved ones are well taken care of, it helps to review a few basics about these documents.
What is a will?
A will is probably the most well-known document when it comes to estate planning. It ensures that your financial assets and other possessions are distributed to the people who you want to benefit from them. Without a will in place, your assets will be distributed according to your state’s intestacy laws. If you die without a will, your assets could very well end up in the wrong hands.
What is a living trust?
Like a will, a living trust is a legal document that allows you to distribute your possessions to specific people or organizations after you die. Different than a will, however, a living trust actually “owns” the property that you put into it, while still allowing you to maintain control. Assets held in living trusts do not have to go through the probate process before being distributed to your beneficiaries; they can be passed down directly to your named beneficiaries.
Now, let’s look at some common misconceptions about wills and living trusts.
Myth #1: Wills and living trusts are only for the wealthy
These documents are absolutely not just for the wealthy. They are legal instruments that are used to help properly protect, manage, and distribute your assets to the right people, the right way, when the time comes. Regardless of net worth, most people have concerns about what will happen to their hard-earned assets. A living trust ensures that they will be distributed to your chosen beneficiaries, and along the guidelines you set forth.
Myth #2: Wills and living trusts are only for the elderly
This is another common misconception. The truth is that, as soon as you turn 18, you need certain estate planning documents in place, and as you go through the various stages of life—marriage, having children, retirement, etc.—your estate planning needs only continue to grow. In fact, not putting an estate plan in place early enough in life is one of the biggest mistakes you can make. By preparing wills, trusts, and other essential estate planning documents early on, you protect your family from the many “what ifs” of life.
Myth #3: Wills and living trusts avoid probate
A will does not avoid probate, and is in fact the primary tool of the probate system. Probate is a court proceeding that authenticates your will, and approves your named executor so that he or she can distribute your property and belongings. On the other hand, a living trust is an estate planning instrument used to help avoid probate, but it can only do so if drafted and funded properly. If you own assets, but they are not properly transferred into the name of the living trust, your family may still have to go through probate. The best way to ensure your trust is set up to bypass the probate process is by working with an experienced estate planning lawyer.
Myth #4: Your will and your assets remain private
Since probate is a matter of public record, anyone can go to probate court and ask to see your file. During the probate process, your Executor may be required to file a full Inventory listing the assets and value of those assets for public record.
Myth #5: A living trust is a public document
A living trust can remain private, as it does not have to be recorded or published in any way. The only people who will know about your trust are the people you choose to tell.
Myth #6: Wills and living wills are the same thing
There is a lot of confusion that arises from a last will and testament and a living will. Even though they sound very similar, they serve entirely different purposes. A living will is a type of advance directive that allows you to choose what kind of healthcare you wish to accept or refuse, and makes your wishes known to your healthcare provider. A will only takes effect after you die and does nothing to protect you should you fall ill or be involved in an accident that leaves you incapacitated. It’s important to have both a will and a living will in your plan.
Myth #7: All you need is a will
A will is an important estate planning document, but it is by far not the only tool you need. A will only takes effect after you die—until then it serves almost no purpose. Making a will is a great first step, but you need additional estate planning documents in place if you want to give yourself as many protections and benefits as possible.
If you’re reading this, you may be recognizing that there is a lot to know about estate planning, and that your prior conceptions about wills and living trusts were all wrong! That’s okay, it happens. The important thing is that you take the time to gain knowledge about these important tools. One way to do that is through our free webinar: Wills and Living Trusts: How to Avoid the 3 Biggest Mistakes that People Make.
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