Many people are often confused about the difference between wills and trusts. A Last Will and testament is a document that states to whom you want your assets to go and appoints an executor to handle the business affairs after death. Without a Will, the law of intestate succession will decide where your assets will go. If you have no heirs, it can go back to the State in which you live.
A benefit of a Will is that the Testator has a writing that documents their wishes and the heirs can rarely argue about what a competent person has written as their plan. In order to execute a will in the state of Ohio, the Testator needed to be of sound mind and know the nature and objects of their bounty (basically what they have and who would inherit if they died). The will must be signed in the presence of 2 disinterested witnesses. Many times people bring in online wills and we find heirs. The main issue is the drafting of the will gives the attorney and testator a chance to discuss multiple issues surrounding end of life. Having a piece of paper is seldom enough. The communication is the critical issue.
When a person has a will but does not plan for beneficiary designations or joint accounts, their will can become meaningless. Having a comprehensive estate plan is the best coverage to make sure that the Testator’s wishes are carried out.
A trust is a relationship between a “Grantor” or the person who created the trust and funded it; the Trustee is the manager of the trust assets and the Beneficiaries or those that benefit from the money in the trust. When a person is alive, the same person can be all three roles. When a person dies, they are still the grantor but the trustee would be someone else and they manage the money for the beneficiaries. The instructions for how to administer the trust are in the document and the trustee has to follow those instructions.
The benefit of a trust is especially useful when you have minor children so that they don’t receive an inheritance at age 18 when they are vulnerable to irresponsible spending. It is also beneficial when a child of any age is a spendthrift or has issues with mental illness or substance abuse. Another of the benefits of a trust is keeping assets private.
There can be drawbacks to trusts. The first is that a trust is more expensive than a will. Second, the assets must be titled into a trust in order to benefit from probate avoidance. Third, the trust can stay open for years after death and depending on whether the trustee is a family member or a bank, the cost of administration can be prohibitive.
So how do you know what requires the probate court and therefore the will?
Basically, when a person dies, money can fall into two buckets; probate and non probate assets. Non probate assets include joint accounts, payable on death (POD) beneficiaries, Beneficiary designations on IRA’s and 401k’s; trusts, houses that have a joint owner or transfer on death affidavit. Everything else is considered probate. Sometimes probate is necessary if the beneficiaries pass away before the owner. The best bet is to take the death certificate to the bank and see if you are the beneficiary. If it needs to go through probate, they will tell you. The bottom line is that honesty is the best policy. Never use a power of attorney for a deceased person and stop writing checks from a decedent’s account if you are unsure that you are a joint owner.
Lawyers know the ins and outs of the legal system. A consultation can prevent costly litigation later.