Especially for parents, there are many benefits to having a will and trust established. With just a little planning, you'll gain peace of mind knowing that your loved ones will always be cared for and your wishes are known. Plus, it no longer takes a lot of time or money to create a will or a trust.
When is it a good time to do a little research and decide if these are right for you? We recommend creating your documents and accounts when you're a new parent, growing your family, or have money you'd like to be designated for your children or other beneficiaries.
Here we'll share what is a will and trust; why you should consider having them; and the best way to get started.
What is a will?
A will is a legal document that lays out your final wishes. In the event of your death, it lets your family know how you would like things to be handled. This can include who you would like to be the guardian of your children, how to distribute your assets, how to provide for pets, and who should be the executor.
Why should you consider making a will?
While we may not want to contemplate what would happen if we were involved in an accident or became ill, a will provides a lot of helpful direction to family and loved ones if they ever need it. You can think of a will as more for them than for you. The last thing a family wants is disagreement over an estate after the passing of a loved one.
If you have children, designating who will be their guardian is likely the most important part of your will. Take your time and make sure to involve the person you are considering naming as guardian to make sure that they are willing and able to fill the role.
A couple things to consider when declaring a guardian: Is the person physically capable? If they already have children, how would your child fit in to the new household? Is the person financially stable and would your estate sufficiently provide for your child's needs? Would the person's discipline style and values offer an environment for your child to thrive? Even with a will, the state will act in the best interest of your child. Because of this, it's a good idea to include a letter stating why you believe your choice in guardian is the best decision.
When we think of wills, we frequently think of stating how we wish to distribute any assets. Another thing a will allows you to do is designate assets to people or organizations that the state would not normally recognize as beneficiaries. If you'd like to leave a memento to a friend or a donation to a charity, it can be outlined in your will.
An important thing to keep in mind is that a will cannot make changes to assets already tied to a trust, life insurance policy or retirement account. These accounts and policies already have beneficiaries named, so you need to make changes to them directly. Additionally, a will doesn't put conditions on how your beneficiaries are given assets. However, a trust does (more on that later) and you can create trusts through your will.
How do I get started?
There are online services that can help you create your will at a reasonable price in less than an hour. Some services will also give you additional legal resources for other family matters. If you have an estate valued over the federal estate tax exemption level, or a number of complicated matters tied in, you may want to get some additional help by hiring a personal attorney.
What is a trust?
A trust creates a relationships where assets are held by a trustee, for the benefit of a specific beneficiary. What makes this a useful tool is that as the grantor (creator) of a trust, you can put in provisions to say how you want the assets to be handled. So while a child may be the beneficiary of a trust, you could restrict access until they reach a certain age or complete a certain level of education.
There are two types of trusts - living trusts and after-death trusts - with a number of additional subcategories that can be used for specific purposes. Trusts can provide tax breaks, some cannot be changed after they are created, and some must be used for a designated purpose.
Why should you consider a trust?
Many people think you must have a large estate to create a trust. However, you can set up a basic credit union share account as a trust and it can provide a lot of additional guidance. As mentioned earlier, wills do not allow you to say how you want assets distributed, but a trust does.
Living trusts make assets available for your benefit, and then transfers them to your beneficiaries after your death. A couple of benefits with the living trust are that you can continue to makes changes and, once you've passed, the trust usually disburses faster to your beneficiaries because it does not go through the court proceedings a will does (probate).
A few types of trusts that are useful for parents to know about are education, irrevocable, and special-needs trusts. Education trusts are what you'd expect, they must be used for education expenses. Irrevocable trusts cannot be changed after they are created, but they reduce estate taxes and begin operating after the grantor is deceased. If you have a special-needs child, a special-needs trust allows you to leave money with specific guidelines without fear of benefits being revoked.
Another reason to consider a trust is to put some safety measures on assets in the event of a divorce. Divorce is another event that we don't want to dwell on, but it's important to set up reasonable measures in case things do turn sour. A trust can ensure money meant for your children goes to your children and doesn't get caught up in the divorce discussion.
How do I get started?
If you're in the process of creating or updating a will, it makes additional sense to tie in trusts at the same time. Especially if you have children who are minors, trusts can go a long way in setting parameters for how and when assets are transferred to them. Similar to a will, there are plenty of online resources for creating a trust. If you have a lot of perameters you'd like to include, it's worth considering an attorney. Fees can vary, so make sure you get recommendations and quotes before choosing. First Financial can help you get the right beneficiaries listed on your accounts and set up your membership as a trust.