When you think about creating your estate plan you undoubtedly think about creating a Last Will and Testament. While it is true that a Will typically serves as the foundation for a well thought out estate plan, it is not typically the only document in a comprehensive estate plan. The additional components you choose to include in your estate plan will reflect your unique needs and wishes; however, one of the most common additions to a comprehensive estate plan is a trust. In fact, some people choose to make a trust their primary estate planning document and their Will then becomes a “Pour Over Will” that effectively catches anything not covered elsewhere in the plan. If you are currently making decisions with regard to the structure of your estate plan, you will likely need to contemplate the Wills vs. Trusts decision.
What Is a Last Will and Testament and What Can It Do for Me?
A Last Will and Testament is a legal document that anyone over the age of majority and who is of sound mind may execute. The primary function, for most people, of a Will is to create a roadmap of how they want their estate assets divided when they die. Both specific and general gifts may be made to beneficiaries in a Will. Although people often fail to think about it, a Will also allows the Testator to make two very important estate planning decisions as well. First, the Executor of your estate is appointed by you when you create your Will. The Executor will ultimately be responsible for overseeing the entire probate of your estate, making it worthwhile to take time and choose the right person for the job. If you are the parent of a minor child, your Will also always you the only opportunity you will ever have to tell a judge who you would appoint as a Guardian for your child in the event one is needed some day down the road. Finally, a Will can trigger a testamentary trust into action if you chose to create one.
What Is a Trust and What Can It Do for Me?
At its most basic, a trust is a legal relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a “Maker” or “Grantor”), who transfers property to a Trustee. The Trustee holds that property for the benefit of the trust’s Beneficiaries. A trust may include current and/or future beneficiaries. Trusts are broadly divided first into two categories – testamentary and living trusts. A testamentary trust is one that does not activate until the death of the Settlor whereas a living trust becomes active as soon as all the formalities of creation have been satisfied. Living trusts are then further sub-divided into revocable and irrevocable living trusts. A revocable living trust can be modified or revoked by the Settlor of the trust at any time and for any reason. An irrevocable living trust, on the other hand, cannot be modified or revoked by the Settlor once the trust takes effect. Because a testamentary trust does not activate until the death of the Settlor it is always a revocable trust.
Wills vs. Trusts
Do you need a Will or a trust – or both? Ultimately, only you can make that decision after consulting with your North Dakota estate planning attorney; however, most people start their estate plan with a Last Will and Testament and then choose to add a trust as a secondary estate planning document. While it is always best to have at least a “Pour Over” Will in place to handle the disposition of any assets not handled elsewhere in your estate plan, you may ultimately decide that keeping the majority of your assets in a trust is a better option for a number of reasons, such as for incapacity planning purposes. In the end, it is rarely a matter of “Wills vs. Trusts” but more a matter of “Wills and Trusts.”
For additional information, please join us for one of our upcoming free seminars. If you have additional questions about Wills and/or Trusts in North Dakota, contact the experienced estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.