A popular misconception regarding estate planning is that only the wealthy need to be concerned about the transfer of their assets. In reality, everyone should determine their goals and objectives for the transfer of their estate. In the event of your death, having a plan that clearly documents how your assets are to be distributed and who is to receive those assets is extremely important. Through estate planning, you can help ensure your wishes are carried out as you intend.
There are many types of estate planning tools, and your estate planning attorney can help you determine which tools are most appropriate for your situation. One valuable tool in estate planning is a trust. A trust is a set of instructions regarding how you would like your assets managed and then distributed to your beneficiaries. This legal document names an individual or entity (the "trustee") that takes legal title to, and manages, the assets you transfer to the trust for the benefit of the persons (the "beneficiaries") you specify in the trust document.
Trusts are created in two ways. A trust may be created and implemented while you are alive (an intervivos or living trust), or it may be created through your will at your death (a testamentary trust). A living trust provides instructions for the management of your assets while you are alive, as well as for the management and distribution of your assets at your death. Typically, these types of trusts are revocable, meaning they can be amended or changed at any time before your death. This provides flexibility, because if your personal or financial goals change, you can make changes to your trust. An attorney may be able to help you determine if a trust can help protect assets from creditors and malpractice suits.
Because a testamentary trust is created through your will, it is effective only upon your death. As with all estates passing by will, the estate is subject to probate, and at the conclusion of the probate process, the assets are distributed to the trustee. In addition, because it is created at death, the testamentary trust cannot provide for the management of your assets during your lifetime and, therefore, cannot plan for incapacity.
Your investment professional can work with your estate planning attorney and tax professional to help you gather information and implement your plan.
Dale Lewis, CRPC®, CIMA®
Stifel, Nicolaus & Company, Incorporated, Member SIPC & NYSE