One of the most prevalent misconceptions when it comes to estate planning is that a Will is all most people need. But before you fall into this trap with your own estate plan, consider these five circumstances where a will simply doesn’t work:
Avoiding Court. To take effect, a will must go through the probate process at your death (or a conservatorship if you become incapacitated while still living), which can be lengthy and deny your heirs (or family while you are incapacitated) a quick resolution to the distribution of your estate (or the ability to pay your bills while you are incapacitated). There are also situations which complicate probate even further such as having minor children or owning property in another state.
Protecting privacy. Once a will is open to probate, it is a matter of public record and open to everyone — meaning that anyone can get access to it and learn the details on everything you owned and exactly where it is going. Wills can also contain personal information that is attractive to identity thieves.
Protecting you in case of incapacity. Since a will only goes into effect upon death, it provides zero protection for you if you should become incapacitated and no longer able to handle your own financial affairs or make decisions about your health care. If that were the case, your family would have to go through the stress and expense of petitioning the court to appoint a guardian or conservator to handle your affairs. This is costly and can even drain your entire estate. This can easily be avoided by having advance medical directives and a financial power of attorney drawn as part of your comprehensive estate plan.
Protecting your assets. Passing assets to heirs via a will does not provide any protection for those assets. Once they are distributed, they become vulnerable to a divorce actions, civil lawsuits, creditors, and even bad financial decisions by your beneficiaries. Placing your assets in a trust gives you control over how and when they are distributed, and protects them from creditors and judgments. This is one of the most powerful aspects of a living trust.
Passing real estate. When your home passes to your heirs through Probate (which it will do without a trust in place) it loses the step up in tax basis that a trust can provide. That means your heirs (who are most likely your family) will have to pay capital gains tax on the difference between the value of the home when you bought it versus the value of the home now. This can be another huge financial burden to bear on top of the already expensive cost of Probate.
See, trusts aren’t just for the wealthy because wills aren’t always the best way to protect and pass on even modest financial assets. Comprehensive estate planning should use living trusts and other legal tools to preserve your assets and make things as easy as possible on your family. Taking care of your family, after all, is really what it’s all about.