Frequently asked questions about wills and trusts
- What happens if I die without leaving a will?
- What does a will do?
- What does a will not do?
- What is a trust?
- What is a revocable living trust?
↓What happens if I die without leaving a will?
If you die without a will (intestate), your state’s laws of descent and distribution will determine who receives your property by default. These laws vary from state to state, but typically the distribution would be to your spouse and children, or if none, to other family members. A state’s plan often reflects the legislature’s educated guess as to how most people would dispose of their estates and builds in protections for certain beneficiaries, particularly minor children. That plan may or may not reflect your actual wishes. Preparing a will allows you to alter the state’s default plan to suit your personal preferences. It also permits you to exercise control over a myriad of personal decisions that broad and general state default provisions cannot possibly address appropriately for your needs.
↓What does a will do?
A will provides for the distribution of certain property owned by you at the time of your death. Generally, you may dispose of such property in any manner you choose. Your right to dispose of property as you choose, however, may be subject to laws of most states that prevent you from disinheriting a spouse and, in some cases, children. For example, many states (including Idaho) have spousal rights of election laws that permit a spouse to claim a certain interest in your estate regardless of what your will (or other documents addressing the disposition of your property) provides. Wills can be of various degrees of complexity and can be utilized to achieve a wide range of family and tax objectives. A will that provides for the outright distribution of assets is sometimes characterized as a simple will. If the will creates one or more trusts upon your death, the will is often called a testamentary trust will. Alternatively, the will may leave probate assets to a pre-existing inter vivos trust (created during your lifetime), in which case the will is called a pour-over will. Such preexisting inter vivos trusts are often referred to as revocable living trusts. Such trusts are useful to avoid your estate having to pass through probate. The use of such trusts or those created by a will generally is to ensure continued property management, divorce and creditor protection for the surviving family members, protection of an heir from his or her own irresponsibility, provisions for charities, or minimization of taxes.
In addition to providing for the intended disposition of your property upon your death, a number of other important objectives can be accomplished in your will:
- You may designate a guardian for your minor child or children if you are the surviving parent. Also, via the use of a testamentary trust and the appointment of a trustee to manage property funding that trust for the support of your children, you can provide for protection for the child’s assets beyond age 18 and also avoid supervision by the court of the minor children’s inherited assets.
- You will designate a personal representative (sometimes called an executor in other states) of your estate in your will, and eliminate the need for them to post a bond.
- You may choose to provide for persons whom the state’s intestacy laws would not otherwise benefit, such as stepchildren, godchildren, friends or charities.
↓What does a will not do?
Your will does not govern the disposition of your property that is controlled by beneficiary designations or by titling and so passes outside your probate estate. Such assets include assets titled in joint names with rights of survivorship, payable on death accounts, life insurance, retirement plans and accounts, and employee death benefits. These assets pass automatically at death to another person, and your will is not applicable to them unless they are payable to your estate by the terms of the beneficiary designations for them. Your probate estate consists only of the assets subject to your will, or to a state’s intestacy laws if you have no will, and over which the probate court may have authority. This is why reviewing beneficiary designations, in addition to preparing a will, is a critical part of the estate planning process.
↓What is a trust?
A Trust is a legal arrangement that can provide incredible flexibility for the ownership of certain assets, thereby enabling you and your heirs to achieve a number of significant personal goals that cannot be achieved otherwise. The term trust describes the holding of property by a trustee, which may be one or more persons or a corporate trust company or bank, in accordance with the provisions of the written trust instrument, for the benefit of one or more persons called beneficiaries. The trustee is the legal owner of the trust property, and the beneficiaries are the equitable owners of the trust property. A person may be both a trustee and a beneficiary of the same trust.
If you create a trust, you are described as the trust’s grantor (sometimes also called a settlor or trustor). A trust created by a will is called a testamentary trust, and the trust provisions for such a trust are contained in your will. A trust created during your lifetime is called a living trust or an inter vivos trust, and the trust provisions are contained in the trust agreement or declaration. The provisions of a living trust (rather than your will or state law default rules) usually will determine what happens to the property in the trust upon your death.
A trust created during lifetime may be revocable, which means it may be revoked or changed by the settlor, or irrevocable, which means it cannot be revoked or changed by the settlor. Either type of trust may be designed to accomplish the purposes of property management, assistance to the settlor in the event of physical or mental incapacity, and disposition of property after the death of the settlor of the trust with the least involvement possible by the probate court.
Trusts are not only for the wealthy. Many young parents with limited assets choose to create trusts either during life or in their wills for the benefit of their children in case both parents die before all their children have reached an age deemed by the parents to be of sufficient maturity to handle receipt of such assets (in Idaho, persons achieve the age of majority at age 18). Trusts permit the trust assets to be held and used for the support and education of children according to their respective needs, with the remainder distributed when the child reaches a specified age (or ages).
↓What is a revocable living trust?
The term “living trust” is generally used to describe a trust that you create during your lifetime. A living trust can help you manage your assets or protect you should you become ill, disabled or simply challenged by the symptoms of aging. Most living trusts are written to permit you to revoke or amend them whenever you wish to do so. These trusts help you avoid probate, which may not always be necessary depending on the cost and complexity of probate in your state.
You also can create an “irrevocable” living trust, but since this type of trust may not be revoked or changed, it is rarely used and is almost exclusively done to produce certain tax or asset protection results.
A living trust is legally in existence during your lifetime, has a trustee or co-trustees (typically you and your spouse if married), and owns the assets and property which you have transferred into the trust during your lifetime. While you are living, the trustee responsible for managing the property as you direct for your benefit. Upon your death, the trustee is directed to either distribute the trust property to your beneficiaries, or to continue to hold it and manage it for the benefit of your beneficiaries. Like a will, a living trust can provide for the distribution of property upon your death. Unlike a will, it can also (a) provide you with a vehicle for managing your property during your lifetime, and (b) authorize the trustee to manage the property and use it for your benefit (and your family) if you should become incapacitated, thereby avoiding the appointment of a guardian for that purpose.