Rowe & Walton, PC

TRUSTS VS. WILLS

Which is Right for You?

Question #1: Should you have a trust or a will and what’s the difference?

 Answer #1: A Will is a document that is signed in compliance with certain state law formalities which disposes of your real and personal property.  A will takes effect after your death and must go through a court validation process called probate. 

 A trust is legal entity created by a grantor for the benefit of designated beneficiaries.  A trust takes effect the moment it is signed and does not require probate to be active.

 Usually, a trust offers the best overall benefits: a trust costs less in the long run than a will because the will must go to probate; a trust is a private contract where a will is filed as a matter of public record; a trust allows immediate access for loved ones on death or incapacitation where a will and probate proceedings usually takes on average 6 months to 2 years to complete.

Question #2: Why not just put my children’s names on my house, investments or banking accounts?

 Answer #2: First, minor children cannot legally own real or personal property, so if your kids are minors they shouldn’t even be named as beneficiaries on your life insurance or retirement accounts or it may be necessary to file for the court to intervene for your children to access such assets.

 Second, if your kids are sued, file bankruptcy, have an IRS tax lien or unpaid child support obligation, their creditors can attach your assets. 

Finally, there are serious income tax consequences if you’ve added your children’s names to your home or appreciated properties that can impact both your income taxes and their’s when these assets are later sold.

Question #3: Can’t I just sign a “power of attorney” over to my spouse or my children so they can transfer my assets on my death or incapacitation.

 Answer #3: No.  A power of attorney “dies” when you die having no effect whatsoever after your death.  A power of attorney, must be carefully drafted or it may not authorize your agent the power to transfer or sell real estate.  Regardless, a power of attorney only authorizes your agent to use your “stuff” for your care and not necessarily to give it to others.

Question #4: Can’t I just put my children’s names as beneficiaries on my life insurance or retirement benefits?

 Answer #4: It is possible to pass your life insurance or retirement benefits to adult children without probating your will. However, if your adult children die, become incapacitated or are receiving government benefits such as Medicaid or disability income this can jeopardize their benefits.  Children under 18 cannot receive a share of a life insurance policy or retirement account outright.  Someone (guardian, grandparents, aunts or uncles) must file for a conservatorship for each under age child; the money then goes into court-approved accounts which the court must annually review and authorize expenditures until the child is 18. 

For a free estate analysis and consultation call 298-0640.

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