Estate Planning 101: Wills vs Trusts

Estate Planning 101: Wills vs Trusts

It can be hard to know where to start if you’re interested in estate planning. This article is for you if you’re looking for a resource that can help you learn the differences between wills and trusts.

Wills and trusts are two of the most important documents you’ll ever write. They both serve different purposes, but they also share some similarities. If you’re confused about how they work together or whether one is suitable for your family situation, this article will help explain what each document does and how they can be used together to protect your loved ones after your death.

The Importance of Estate Planning 

While alive, estate planning is crucial because it allows you to take control of your assets, manage your financial affairs, and ensure that your wishes are honored after you’re gone.

When you have an estate plan in place while you’re still alive, you can ensure that your assets go to the people and causes that matter most to you. You can also ensure that your financial affairs are handled according to your wishes, including distributing any debt or other liabilities among various parties as needed.

Intestate Death in Nevada 

When you die without a will, your death is considered “intestate.” This means that a probate court will determine the distribution of your assets.

This can be an expensive process and take a long time. In addition to this, there are risks associated with intestate death. Your assets might not be distributed according to your wishes, or they could be distributed in ways that cause interpersonal conflicts among family members.

You should always make sure to have an estate plan in place to avoid these situations and ensure your wishes are followed after you pass away.

All About Wills

A will is a legal document that outlines how you want your assets distributed after you die, and it’s the most critical part of an estate plan.

What Wills Do 

A will lets you decide who gets what, when, and how much they earn. You can also leave money or property to charity or designate a guardian for minor children. For example, if you have young children, you might want to name one or both of their parents as guardians—but only if they agree to take on the responsibility. If there’s no agreement between them, the court will decide who should be a guardian.

In addition to your wishes about who gets what, there are some other important reasons why you should create a will:

  • It ensures that your wishes will be fulfilled even if something happens before your death (like losing mental capacity).
  • It helps keep things simple, so family members don’t have to go through the hassle of probate court proceedings when everything is in order before death occurs.
  • You can ensure your loved ones are safe long past your lifespan.

Different Types of Wills

Although state laws vary, a will must be executed by someone over the age of majority, which is of sound mind. This person is known as the “testator.” The testator appoints an executor to handle the estate distribution. The testator must also sign and date the document in the presence of one or more witnesses. Depending on your state law, the will may need to be notarized.

When creating a will, it’s essential to understand your options. There are typically four categories of will: simple, joint, and living wills. 

Simple Wills

A simple will is a document that details the distribution of assets and names guardians for minor children. It’s easy to create and does not require an attorney, though legal assistance is always recommended. It does an excellent job of distributing assets and naming guardians, but it has some limitations. For example, you can’t place conditions on inheritance or leave anything to charity.

Joint Wills

One option that many people consider when they are planning their estate is a joint will. Joint wills are documents in which two or more people decide what will happen to their property when they die. They can designate who will be responsible for handling the deceased’s affairs and make other important decisions about the distribution of assets.

The benefit of a joint will is that it allows multiple people to decide how their assets should be distributed after their deaths, so there is no need for court intervention. However, if one testator dies before the other, this can mean that there is no way for them to change their will after their partner passes away. 

Living Wills

A living will is a document that spells out medical treatments you would and would not want to be used to keep you alive, as well as your preferences for other medical decisions, such as pain management or organ donation. It’s helpful to have this document because accidents happen, and it can be difficult for family members and other loved ones to decide about treatment or end-of-life care.

Creating A Will 

The first step in estate planning is assessing your wants, needs, assets, and debts. You’ll want to consider what kind of life insurance you want for yourself and your family members; what assets are most important to you; who should inherit those assets; and if any debts need to be taken care of before they become an issue.

Once you’ve decided on these things, you can start creating a will. This document outlines exactly how you want something to happen after death: who gets what and in what order; how much money goes where; whether or not gifts should be made during life; whether or not any particular provisions need to be made for minor children; etcetera.

It’s recommended that people work with an attorney when creating their wills because they have experience dealing with legal matters and can help inform them about anything they might not know about yet (for example, tax laws). It’s also recommended that people work with a financial planner who can help them make smarter decisions about their money. 

Trusts 

A trust is a legal entity that allows you to give assets or property to others for their use, care, and benefit. Trusts are created by using a trust agreement, a written document that outlines the terms of the faith.

What Do Trusts Do? 

Trusts can be used in estate planning and financial planning to help mitigate the costs associated with probate after your death. When you die, your assets pass through your will or living trust to your beneficiaries. This process can be costly and time-consuming if you have a lot of assets. With a trust, however, you can designate who receives what assets without going through probate court.

Trusts also help ensure that loved ones are taken care of financially if something happens to you unexpectedly. For example, suppose someone is incapacitated due to an injury or illness and requires long-term care that isn’t covered by insurance or Medicare. In that case, that person’s spouse may not have enough resources on their own to pay for it without going into debt themselves. A trust allows one spouse to leave assets behind specifically to pay for such expenses without having them directly tied up in their name so that there is still some money available for other needs like food or clothing for those still living at home (children).

Standard Elements of a Trust

Trusts have four basic elements: the grantor, trustee, beneficiary, and property. The grantor is the person who creates or funds the trust. They retain ownership of assets until they die or transfer them into the trust. The trustee manages those assets on behalf of the grantor and any beneficiaries named in the trust agreement. Beneficiaries receive benefits from the trust. Finally, property refers to assets held in the trust. 

Different Types of Trusts

Living Trusts

Living trusts are a type of trust created during the grantor’s lifetime. A living trust is an arrangement in which you transfer ownership of your assets to the trust rather than directly to the people who will inherit them after your death.

Living trusts can be used for several reasons. First, they can help you avoid probate, which is the court-supervised process that settles the affairs of someone who has died. Probate can be expensive and time-consuming, so avoiding it helps keep costs down and ensure that your family’s matters are settled as quickly as possible.

Another advantage to living trusts is that they allow you to make healthcare or end-of-life provisions for yourself and your beneficiaries before you become incapacitated or pass away. This can be an essential part of estate planning for older individuals who wish their wishes to be followed even if they cannot speak for themselves later on down the line.

Living trusts also allow you access income and principal immediately after creation without having to go through probate court proceedings first (this may only apply in some states). And finally, living trusts provide privacy when filing an inventory of assets with the state where required by law.

Testamentary Trusts

Testamentary trusts are a type of trust that can be created by the grantor’s will. They are sometimes called “trusts under will” or “testamentary trusts.”

A testamentary trust is an estate-planning tool that can accomplish many goals. Some of these are:

  • Preserving assets for children from a previous marriage
  • Protecting a spouse’s financial future by providing lifetime income
  • Ensuring that beneficiaries with special needs will be taken care of
  • Gifting to charities

Irrevocable Life Insurance Trust

Irrevocable Life Insurance Trust (ILIT) is a type of irrevocable trust that uses life insurance as its funding source. ILITs are typically used to help estates contain more than the $11.7 million applicable exclusion, which is the amount that can be passed tax-free to heirs.

For many reasons, life insurance can be an invaluable tool in the estate planning kit. First, it can be used to transfer wealth over time, making it ideal for people who have accumulated substantial assets and want to continue contributing to their families’ financial security after they pass away. Second, it can provide liquidity to pay off debt or fund significant purchases that would otherwise be impossible while the grantor is alive. Thirdly, the proceeds from an ILIT can be used as an alternative to probate when there is no valid will or trust present at death.

An ILIT is funded with a life insurance policy where the trust becomes both the owner and beneficiary of the policy but grants inheritance rights to any surviving children or other heirs named by the grantor at transfer time. This plan must be valid for three years from its inception for any benefits paid out by insurers via this arrangement to qualify for tax-free exemption under current IRS regulations. 

Charitable Remainder Trust

A charitable remainder trust (CRT) is a valuable estate planning tool for anyone who owns appreciated assets on a low basis, such as stocks or real estate. Donors can sell appreciated assets without incurring capital gains tax if they fund this trust with appreciated assets. Furthermore, charitable remainder trusts are irrevocable, which means they cannot be changed or terminated without the beneficiary’s consent. When the trust acquires irrevocable status, the grantor effectively relinquishes all ownership rights to the assets and the trust.

Qualified Domestic Trust

The qualified domestic trust is a legal arrangement that allows non-citizen spouses to take advantage of the marital deduction ordinarily available to married couples.

Special Needs Trust

A special needs trust is a legal arrangement that allows a physically or mentally ill person, or someone who is chronically disabled, to receive funding without potentially losing benefits from public assistance programs like Medicare or Supplemental Security Income (SSI).

How Trusts and Wills Differ

Wills and trusts are both ways to transfer assets after death. They have some key differences, however.

Wills are public documents that anyone can read, while trusts are private documents that only the creator and their beneficiaries can access. This is because wills go through probate, meaning they must go before a judge and be approved before they become valid. Trusts do not need to go through probate court, so they don’t require judicial approval.

Another major difference between wills and trusts is that while wills take effect after the death of a testator (the person who created it), trusts can be active during life. For example, you could build a trust that takes effect when you turn 50 years old or when your child turns 18; when you die, or your child reaches that age, the assets in the trust would be distributed according to its terms. This means you’d use a will if you wanted something done immediately upon your death—like distributing your assets to family members—while you’d use a trust if there were certain conditions attached to receiving those assets—like having reached a certain age or having completed an educational program. 

It’s important to note that a will and a trust often go hand in hand. Both documents can be used to plan for your future. Still, they function differently: a will lets you decide how your estate will be distributed after your death, while a trust enables you to designate who will care for your financial affairs during your lifetime.

Because there are different types of trusts (for example, an irrevocable trust cannot be changed once established), it’s best to talk with an attorney about which type would work best for your situation.

If you’re looking for help with creating an estate plan, Kalicki Collier is here for you.

Kalicki Collier has been providing Reno with effective legal representation for years now. We specialize in estate planning and have helped countless families achieve their goals of protecting their assets while still allowing loved ones freedom and flexibility over how they use those assets. 

At Kalicki Collier, we are dedicated to providing legal advice and helping you create the best possible estate plan for your family’s needs. We have the expertise needed to navigate through any issues that may arise during probate court proceedings so that your family won’t have any unnecessary stress placed on them during this difficult time. Contact us today to get started! 

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