How to Understand Wills & Trusts
For the sake of your heirs, you should learn about wills and trusts before you begin your estate planning. If you only have a will, your estate will go through probate, which can cost your children a great deal of time, effort and money. If you add a trust--usually a revocable living trust--you'll eliminate the need for probate and make life easier for everyone involved. Here's how to gain an understanding of wills and trusts.
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Instructions
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Get familiar with the essentials of estate planning. Attend a seminar or class, or pick up some reader-friendly books, such as "The Complete Idiot's Guide to Wills and Estates." Before you buy any book on the subject, glance through it to make sure it's in plain English rather than legalese. Tackle wills first because they're more basic and easier to understand, and then move on to trusts.
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Learn about the important sections of a will, including the parts that involve other people's roles. A will begins by revoking previous wills. The next part appoints executors--people who will administer what you've requested. An executor may serve as a trustee if necessary--for instance, if a beneficiary is younger than 18. A will may also appoint a guardian for a minor.
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Study the financial parts of a will. The document may grant gifts of money or personal effects to specific beneficiaries, but there is often money left over after that. If certain funds aren't accounted for, they may be treated as though a will didn't exist.
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Learn about other possible provisions in a will. It may contain a variety of things, such as direct payment of debts and a clause to cover taxes. It also may contain your wishes for funeral arrangements, but sometimes a will isn't read in time to honor those.
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Understand that a trust is important in addition to a will. For example, a revocable living trust may not only save your heirs time and money, but it also can keep the proceedings out of the public eye.
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Learn about the people involved in a trust. If you create a trust, you're the settlor; a trustee is in charge of administering the trust; and beneficiaries inherit the assets in the trust.
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Study up on funding a trust and placing your assets in it. Only the assets in the trust will be covered by it. In the case of a revocable living trust, it's good to have a will accompanying it. It's known as a "pour-over will'' because upon your death, it pours any neglected assets into the trust.
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Understand the tax consequences of trusts. Some, like revocable living trusts, don't reduce your estate taxes, but you can add other options. For example, a bypass trust may reduce federal estate taxes for your children.
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Tips & Warnings
Learn what isn't in a will, as well as what is. Wills don't cover certain things like life insurance and retirement benefits--they have their own beneficiaries. Make an appointment with an estate-planning lawyer to learn more about wills and trusts. The first session may be free, and then you can choose whether or not to retain the attorney.
