Key Estate Planning Tools

When it comes to designing your estate plan, there are a variety of tools to choose from. Wills, trusts, powers of attorney, and other legal documents can all be used to create a plan that addresses your unique needs and objectives. Here are some of the more common tools and what they are used for. We can tell you more about them and help you determine which ones may fit you best.

Wills

A will is probably the most well-known legal document. This particular document is where you provide directions for how you want your assets distributed, who you want to serve as the guardian for your minor children, and who you want to oversee the administration of your estate.

It is crucial that everyone has a will. Without one, the laws of your state will determine how those assets that are not being transferred by other legal means will be distributed among your family.

Even people with a revocable living trust use a will to direct how the assets that are not part of the trust will be distributed. A special type of will, known as the pour-over will, is sometimes used to direct that all of the assets from outside of the trust be poured into the trust (these assets must go through probate first).

Unlike some other estate planning tools, a will must pass through probate before the assets can be distributed. Probate is a court-supervised process that oversees the validation of the will, the collection of your assets, they payment if any debts and taxes and the eventual distribution of assets. You can minimize your estates exposure to probate by using estate planning tools that avoid it.

Revocable Living Trusts

A trust is a legal arrangement that specifies how the assets in the trust are to be managed during your lifetime and distributed after your death.

One popular type of trust is a revocable living trust. This is because the assets in the living revocable trust avoid probate, meaning the person you name as your successor trustee can distribute the assets without it going through probate first. This may save both time and money, as well as protect details of your trust from prying eyes. (Wills become a matter of public record when filed in the probate court so anyone can take a look at your will if they want to.)

Another reason for their popularity is that revocable living trusts make it relatively easy to transfer management of the assets within it. If you should ever become incapacitated, the person you name as your successor trustee can quickly step in and manage the assets on your behalf. Until that time, you can remain in full control of the trust assets if you name yourself as the trustee. If you change your mind about the trust, you can change it or revoke it at any time.

Other Trusts

In addition to the revocable living trust, there are several other types of trusts available to you that can help meet your objectives.

For example, if you are concerned that a younger heir may blow through his or her inheritance too quickly, you can set up a trust that makes distributions to your heir over a period of years, beginning at a specified age.

For another example, if you want to provide support to your current spouse and protect the inheritances of your children from an earlier marriage, a trust can be set up that pays the income from the trust to your spouse for the rest or his or her life and then distributes the remaining trust assets to your heirs after your spouse’s death. The benefit to this trust is that your spouse receives financial support but cannot change the financial beneficiaries you chose for the trust. If you were to leave the assets outright to your spouse, they may decide to leave your assets to his or her own children or new spouse.

Trusts are also used to minimize estate taxes, shield assets from creditors, provide for a special needs individual while preserving his or her eligibility for government benefits, and help meet many other objectives.

Check back next week for more key estate planning tools!

With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. We look through every aspect of your financial plan and identify opportunities to put tax-efficient strategies into play for you – strategies that should be applied today and revisited as your circumstances evolve with the goal of a prosperous tomorrow. Call us today at 802.878.2731 to schedule a strategy session and begin building your road map to financial success.

Article published in March 2020 edition of Eye on Money. If you would like to be added to our mail list please email jennifer@dh-cpa.com.