Will & Trust Estate Planning

Wills and Trusts are commonly understood to be important for estate planning, but few people understand the difference between these two documents.  They are not interchangeable documents and clients may benefit from having both.  Trusts and wills do not replace one another and have separate purposes.

Trusts are a far more sophisticated planning tool than Wills.  Well-advised clients almost always have at least one Trust in place.  Sometimes clients will use multiple trusts to accomplish different goals.  Trusts are not just for the wealthy, as everyone can find benefits from the right kind of Trust.

It is important to understand that not all Trusts are the same.  There are dozens of different kinds of Trusts, each with its own set of advantages.  Clients can often realize tax advantages, legal protections and special planning goals by using Trusts.  Because of the inherent complexity of Trusts, it is best to connect with an attorney who focuses their law practice on trust estate planning.

Unlike Wills, assets that have been transferred to a properly drafted Trust may avoid probate court involvement.  This process may take months and is typically billed hourly by attorneys. In addition, numerous appearances by attorneys in court and submission of paperwork can make the probate administration process expensive.

Trusts can also address taxes.  Estate taxes, gifts and capital gains taxes in particular are commonly addressed by Trusts.  This alone can save an estate significant reductions in value.  It is important to note that because not all trusts are the same, many trusts do not have tax benefits.  Rather, the drafting attorney must build a Trust plan that specifically addresses these issues.  It should not be assumed that simply because a document is called a “Trust” that it has tax benefits. 

Creating and funding a Trust allows for easy management and transfer of assets upon death or disability.  It may be unwise to leave an entire inheritance to a loved one if that person is a minor, incapacitated, or financially imprudent.  Likewise, many clients want to protect their inherited wealth from the potential for divorce, lawsuits and the possibility of becoming incapacitated in the future.

McManus Estate Planning LLC can review the options with you.  In summary, your estate plan may have some, or all, of the following goals:

• Reduce or eliminate Massachusetts Estate tax;
• Reduce or eliminate capital gains tax after a death;
• Avoid probate court involvement;
• Protect assets from incapacity;
• Provide for a spouse and children;
• Provide for and protect minor or disabled children;
• Blended family situations;
• Control use or disposition of assets after you have died; and
• Protect beneficiaries from creditors, lawsuits or divorce.

The first step is to determine who will receive your property, a spouse, children, or other family members, and when. You may choose to have your property held in Trust until the recipient reaches a specified age. Or you may wish to give property to a charity or other organization. There are many possibilities, and you’ll have more peace of mind of you make choices in advance instead of leaving it to a court to decide.

Having a Trust becomes especially important when minor children and a former spouse is involved. For example, imagine if you pass on with minor children and a former spouse. It is likely that your former spouse—as their guardian—will have control of the inherited wealth you intended for your children.

With a Will you can also create a testamentary Trust to hold your estate for your children until they reach their majority or a later age that you designate. However, you can accomplish the same thing with a funded, living Trust during life and avoid the Probate Administration process. That said, there are special times when a testamentary Trust may be useful for certain situations, especially nursing home planning.

Using similar instruments, you can provide for a second or current spouse while still protecting assets for your children. You can determine how much or how little will be set aside for your spouse for her or his lifetime, subject to the spouse’s statutory rights to take a certain share of your estate. With your assets in a Trust, your spouse can benefit from them but not control them. Your Trust can provide for the balance of the assets to pass to your children—or to be held in further Trust for them—after your spouse dies. If you wish, your children can be beneficiaries of the Trust even while your spouse is still alive.

Estate planning is essential but “Wills” are not always the most efficient vehicles for it. The majority of our clients at McManus Estate Planning use Trusts to accomplish what Wills cannot do.

If you die without a proper estate plan and lack both Trust and Wills, the government will consider you to have died “intestate” and will use an Intestacy Statute to determine the distribution of assets to the people it considers to be your beneficiaries. Of course, assets with beneficiary designations pass outside of the Probate Court administration process. Consult the Massachusetts Uniform Probate Code for more information.

Creating an estate plan requires careful consideration and is best done with the guidance and assistance of a skilled and seasoned estate planning attorney—this should not be a “do-it-yourself” project.

Because there are more efficient means of transferring assets, such as a Trust, the Will is often not the primary estate planning tool. However, it does have an important place in the planning process. A common and valuable purpose to a Will is naming guardians for minor children.