When you meet with your attorney to draft your estate plan, it is a good idea to have a grasp on what kind of documents you may need to create.
Depending on your family situation, your attorney may recommend you design a will or a trust, and in some instances both documents. Do you know what function these two estate documents perform? Here is a basic description of each.
What is a will?
Your will is the document that sets out how you want your property and assets divided after your death. It only pertains to things you held solely in your name and cannot divvy up things such as life insurance policies. It is the place where you designate an executor to take care of administering your wishes. A will only goes into effect upon your death. Also note you can change your will at any time, so long as you have your full mental capacity about you.
What is a trust?
Sometimes you have other ways you want to distribute your assets, and a trust may wind up as the best choice. You have two choices when it comes to creating a trust:
- Revocable living trust – This is the most common type of trust. It gives you, the grantor, the power to decide what property to put in and take out of the trust during your lifetime.
- Irrevocable living trust – Unlike the revocable option, this type of trust only allows you to place property in it one time, and then it is no longer modifiable even for you.
Once you create and sign a living trust, it becomes effective. As the initial grantor of the revocable living trust, you designate successors in interest to take your place once you die. A trust includes anything the grantor deposits in it, including life insurance policies, property and cash.
When sitting down to hash out your estate plan, know what document or combination fits your family's needs. If you have a diverse portfolio, you may want to check into adding a living trust to your plan or just dividing it all in a will.