Most of us know that estate planning, the process that distributes your assets after death, is important. Often, however, we don’t know where to start. It can be difficult to differentiate between intestate succession, a will, and a trust. Some aspects of each are very different, while others are more nuanced.
In this article, we will help explain the unique qualities of each. To help illustrate the example, we will assume that you left behind two children and no spouse. Using this scenario as a basis, let’s look at how each process works.
When someone dies and leaves behind no instructions, their assets fall into intestate succession. In this process, the state completely controls what happens.
Intestate succession publicizes all the deceased’s finances. Your assets go into probate, the process that handles the decedent’s estate. There is no privacy, and your accounts are open to the word. Whatever you owned, owed, and received becomes a matter of public record. Without an estate plan, publicity is guaranteed.
Once the death is announced, creditors come for the bill. They want their money for your car loan, mortgage, and credit cards. Along with creditors come the predators. Once your passing is made public, any unscrupulous actor can claim that you were their debtor, seeking payment for a loan that never existed. Because you left no plan behind, it can be easy to convince your family that they owe money to these bad-faith actors. Without a hard, written record, it can be difficult to verify your accounts.
After creditors are paid, the state decides where the rest of your money goes.In the scenario we present, each of your surviving children receives ½ of your leftover assets. There is no predicting what happens to your physical property when the state makes these decisions. It can sell off your property and divide the money between the kids; it could arbitrarily grant property to one child while leaving the other out. Any combination of these two situations could occur.
Moreover, the ages of your children will factor into how assets are divided. If either is over 18, they will receive their share right away. However, if either is a minor, the court manages their assets until they reach adulthood. It will appoint a manager to do this. This person may be a complete stranger, and they could potentially pay themselves handsomely from your child’s account. They can make significant changes to the estate before the child is 18, handing over something very different from what originally existed.
Without a will, child custody will be decided by the courts. In the best-case scenario, there is a close relative such as an uncle or grandparent who will be given this responsibility. However, the court could hand your children over to an unknown professional guardian.
The bottom line is this: In intestate succession, someone else makes decisions about your debt, assets, and children.
A will is a document you leave behind, detailing your wishes for your estate.
When you leave only a will, your estate still goes into probate. Your creditors still come for their bills, and your descendants may have to deal with predators. Your death, after all, becomes a matter of public record. However, a will can help control some of these issues. With careful estate planning, you can outline your finances, making it easier to keep track of who you owe. This will help expose criminals trying to steal money from your kids.
When you leave a will behind, your assets are managed by an executor. This person’s job is to make sure the will’s wishes are carried out. You can name this executor in your will. Otherwise, they will be appointed by the court. They pay off your leftover debt and transfer property as instructed.
With a will, you can name your children’s guardian. The state tends to regard blood relations above all else, and it can give custody to a family member you don’t trust. Using a will, you can grant custody to a close friend who has acted as a parent since your kids’ births.
A will can leave whatever you want to whomever you want. Perhaps you don’t want your children to share an equal, 50/50 split, which would happen without a will. It might make sense for one to have more money and the other to have more physical property. Because you are granting custody, you may want a good portion of your money to go to the guardian. Maybe you have an item that has no monetary value, but its sentimental value is of huge importance to a close friend. With a will, you can give that one specific item to that one specific person.
The bottom line is this: With a will, your wishes are ultimately handled by the court. However, through an executor, there is more oversight on how your wishes are carried out. If necessary, an executor can push back against the court, using the will as their tool.
A trust is a “living” entity. You can imagine it as a company that controls your estate after death. For a trust to function, it must be funded. You must add value to it through savings, real estate, and so forth.
Using a trust, you can avoid probate.Ownership is transferred from your name to the trust itself. Your assets stay a secret, known only to the members of the trust. The trust owns and distributes property, not a court.
You may still need to use a will to cover all possibilities. With a will, you could, for example, say something like “transfer of all remaining assets goes to the trust.”
A trust can dole out property over time. With a trust, you can put your beneficiaries on an allowance. Your children could, for example, receive a daily, monthly, annually, etc. stipend. You can put deadlines on the property itself. For instance, you can stipulate that the older child gets the home at 18, and the younger one gets the car at 16.
A trust can even create caveats with your beneficiaries. You could, for instance, stipulate that your child must invest and grow their allowance before receiving the next portion.
A trustee can continue to manage the trust. Your trust can function long after you are gone. It can accumulate wealth through investments, real estate, and so on. This progression is managed by a trustee or a board of trustees. They can run your estate like a company, even paying themselves if running the trust is their full-time job.
Appointing a trustee can keep the wealth from being squandered. They can control who gets money when, cutting off recipients who burn through their money. If necessary, they can use this as a teachable moment, helping the beneficiary learn how to manage and grow their wealth.
The bottom line is this: With a trust, your wealth can last long after your death, benefitting future generations of your family.
Working With an Attorney
When planning your estate, it’s always advisable to work with a skilled lawyer. They can help craft a plan that works for you. If you have a smaller estate, for example, your family may benefit from the lump sum they would receive in a will. It can cover the immediate need of your loss and help them rebuild for the future. If you have a larger estate, however, a trust could go toward future-proofing your wealth for years to come.
However, there is no one-size-fits-all plan. Wills and trusts can be used together. Even if your estate is vast, it might be better to transfer your assets to your child who already runs the family business. This could help them continue the work without halting. Talk to your attorney about your needs, and allow them to work with you on creating an optimal estate plan.
For help with wills, trusts, or both, reach out to our firm for a free consultation. You can call us at (972) 737-4456 or contact us online.