Ingrams July 2023

SMALL BUSINESS ADVISER WEALTH MANAGEMENT

by Megan Kelly

by John W. Meara

Understanding the Roles of Wills and Trusts

These legal instruments can be essential elements of an effective estate plan. Estate planning is a critical component of your overall finan cial plan. Having an estate plan in place helps ensure your loved ones are taken care of and your assets are distributed according to your wishes should something unexpected happen to you. During the estate planning process, many clients ask, “Should I have a will, a trust or both?” Here, we highlight the differences between the two estate planning documents and offer tips to help you decide whether one or both is right for you. Wills This legal document that specifies how your assets will be dis tributed following your death. It allows you to name an executor for your estate and a guardian for any minor children. A will can

some properly structured trusts can even provide tax benefits and asset protec tion. Assets that are titled in trusts are typically not subject to probate, which can help ensure your estate is settled as quickly and inexpensively as possible. A downside to using a trust has to do with titling assets. In order for a trust to be effective, it must own assets, which means that after establishing a trust, you must retitle all assets and accounts into the trust. This can be time consum ing, and some assets can be difficult or even impossible to transfer. With just a will, assets stay in your name until you die, at which point it becomes the job of your executor to retitle them to your estate. So, do you need a will, a trust or both? The answer de- (with supplemental titling actions, you may be able to largely avoid probate). On the other hand, if you have a larger estate, complex distribution instructions or unique tax liabilities—or you wish to protect your assets from creditors— a trust may be the better option. If you have minor children, you may need to have both a will and a trust. A will designates guardians, while a trust can help manage your assets and distrib ute them to your beneficiaries according to your wishes. As you’re making this important decision, it’s wise to consult with your wealth manager and an experienced estate planning attorney. These pro fessionals will work together to help you establish custom estate planning documents to meet your specific needs, ensuring they’re in line with your overall financial plan and goals for the future. pends on several fac- tors, including the size of your estate, your specific legacy goals and your family situation. If you have a small estate and simple estate planning goals, a will may be sufficient

be updated and changed as your life and situ ation change, but it only goes into effect after your death. If you die without a will, your assets will be distributed according to the laws of your state, which may not be consistent with your wishes. Benefits/Downsides: Wills can be a simple, cost-effective way to ensure your assets are passed along according to your wishes and that the appropriate guardians are in place for your children. By itself, it cannot help you avoid probate. In fact, probate is generally the process by which your executor will be able to use his or her powers under the will after you

Wills specify how your assets will be distributed following your death; trusts hold assets and distribute them to your beneficiaries.

have passed away. The probate process can be time-consuming, expensive and stressful for your heirs. Probate proceedings are also public record, so anyone (including creditors) can find out who is inheriting and how much. If your goal is to avoid probate, you may need to implement additional estate planning strategies. Trusts A trust is a legal entity that holds assets and distributes them to your beneficiaries according to the trust’s terms. Unlike a will, it can become effective while you’re still alive and continue to operate after you die. There are several different types of trusts, including revocable trusts, often referred to as a living trust; the less common irrevocable trust; and special-needs trusts to provide financial support for an individual with special needs without dis qualifying him or her from government benefits. Benefits/Downsides: Trusts offer several benefits that wills don’t. Like a will, trusts offer the ability to specify how your assets will be distributed to beneficiaries; however, unlike a will, at your death these instructions and distributions happen outside of probate. Trusts are usually the more efficient estate planning tool if you want to put age- or timing-based restrictions on assets that are passing to loved ones. Trusts allow for more backup and contingency planning than other estate planning methods, and

Megan Kelly is a lawyer with Creative Planning Legal in Overland Park.

P | 833.416.4702 E | megan.kelly@

creativeplanning.com

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Kansas City’s Business Media

July 2023