Most of us understand that having some type of an estate plan is a good thing. However, many of us don’t take those first steps to get that plan in place because we don’t understand the differences between a will and trust–or the detriment behind dying without either.
We’ve broken down what happens if you die intestate (without a will or trust), with a will, or with a trust.
1. Dying Intestate.
If you die intestate, all of your financial accounts and property will go through probate. Part of the probate process requires the publication of your death and the assets left behind—meaning all the world will know what you owned and what you owed. This allows your mortgage company, car loan company, credit card companies, and any other outstanding creditors, to all seek payment on balances you owed at the time of your death. After those payments, state law will decide who gets what and when.
● If your only heirs are your two children, and you have not left any legally recorded instructions for asset distribution, state law will mandate divvying up the proceeds equally between your two kids.
● Any adult children (18 or 21 years of age, depending on state law) will get their share immediately.
● However, the court will appoint a guardian to hold and/or manage the money for any minor children until they reach adulthood. This guardian can charge a lot of money for their services, and could be a relative or a total stranger.
● If you die without a valid will, the court will also decide who gets custody of any minor child.
The bottom line? Dying intestate allows state law and the court to make all of these decisions on your behalf—regardless of what your wishes or intent might have been. Publication of your death and assets is also guaranteed.
2. Dying with a Will.
If you die with a valid will, your accounts and property will still go through the probate process. However, after creditors have been paid, the remaining accounts and property will be distributed to whoever you have named in your will.
● If you want to leave money to your children, as well as name a guardian for any minors, the court will typically abide by your wishes.
● The same holds true if you specified that you wanted to give money to a charity, your Aunt Betty, or a neighbor.
● Even with a will, probate is still a public process and your death and assets will be published.
The bottom line? While a court oversees the probate process, having a will allows you to tell the court exactly how you want your affairs to be handled. But, publication of your death and the assets your left behind is still guaranteed.
3. Dying with a Trust.
If you have a trust, you have fully taken control of your accounts and property, which are owned by the trust and are not subject to the probate process. One of the many benefits of a trust is that the details and process of transferring accounts and property to your heirs is kept private and is not publicly published.
In the trust, you will have named a trusted individual (trustee) to manage your affairs with specific instructions on how your accounts and property should be dispersed and when.
● One word of caution—a trust must be properly funded in order to by-pass probate. Funding means that ownership of your accounts and property has been changed from your name individually to the name of your trust.
You do still need an additional will (called a pour-over will) to ensure any accounts or property inadvertently (or intentionally) left out of your trust do ultimately get into the name of the trust. You also need a will in order to name guardians for any minor children.
The bottom line? A trust allows you to maintain control of your accounts and property through your chosen trustee, to avoid probate, and to leave specific instructions so that your children are taken care of both physically and financially in the manner you see fit.
Still have questions? Don’t let the will vs. trust controversy confuse you or slow you down. Email or call our office today; we can help you put together an estate plan that works for you and your loved ones whether it includes a will, trust, or both. We are available for both in-person and phone/virtual consultations!