A Will is the only way that one can ensure that his/her wishes with regard to providing for their family, relatives and friends are carried out. A Will allows us to provide for the special needs of the family and furthermore, with proper advice, it can also be used as a tax planning opportunity. If we were to pass away without making a Will the rules of intestacy would apply to determine the distribution of the property. This may not be in accordance with how we would like our property divided and ultimately our family may be the ones to lose out.

If you don't make a will or use some other legal method to transfer your property when you die, state law will determine what happens to your property. Generally, it will go to your spouse and children or, if you have neither, to your other closest relatives. If no relatives can be found to inherit your property, it will go to the state.

A Will can be used to name a guardian to take care of younger children and manage their property. If both parents of a child die or become otherwise unable to care for a minor child, another adult -- called a "personal guardian" -- must step in. The personal guardian will be responsible for raising children until they become legal adults.

A will once made can be changed by the person making the will through a codicil. A codicil is an amendment to the will.

Living Trusts

The big advantage to making a living trust is that property left through the trust doesn't have to go through probate court. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.

The average probate drags on for months before the inheritors get anything. And by that time, there's less for them to get: In many cases, about 5% of the property has been eaten up by lawyer and court fees.

Unlike a will, a living trust document cannot be made public. This is the major advantage of creating a living trust as living trust offers privacy.

To establish a living trust, an individual transfers title of his assets from himself as grantor, to a trustee of the trust (often the trustee and grantor are the same person), to administer for the benefit of himself and at least one other person. The trust may also name the remainder beneficiaries who will take after the grantor dies. The beneficiaries get nothing until that person dies.

Benefits of living trusts

Avoid probate

The biggest advantage of creating a living trust is it avoids probate.

Privacy

Another advantage of creating a living trust is that the trust document is not a public document like a will.

Save money

Generally it will cost more up front to have a living trust prepared than a simple will. The savings are on the back end. The real savings that a living trust potentially offers only applies if the living trust is funded during your lifetime and thus its assets avoid probate.

Is making a living trust expensive?

It depends on your individual circumstances and the complexity of documentation and planning required to achieve your goals and objectives. Generally, the costs will include the lawyer's charges for discussing your estate plan with you and for preparing a living trust agreement, your will, power of attorney or other necessary legal documents; supervision over their execution; and services or instructions for funding your living trust.

It is crucial to keep in mind that a living trust is a very important part of your estate plan. Avoid being lured by promotions for extremely low-cost living trusts without checking out those who are making the offer.

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Wills

A Will is a legal document that sets out the terms of how your assets will be distributed to your beneficiaries upon death. It is important to note that a Will only takes effect at your death. Therefore, you may change your Will at anytime prior to death, as long as you are considered competent to do so at the time of any change.

The primary reason for having a Will is to ensure your assets are distributed and your other wishes carried out in the manner that you desire and that your beneficiaries are looked after.

Your Will should be reviewed whenever there is a major change in your life or every two to three years, as the consequences of having Will which is out of date may be worse than if a Will had not been prepared at all. Major changes in your life would include:

Furthermore, other factors which may make it important to review your Will are the death of a beneficiary or the executor or any changes in succession legislation or tax law which may impact the desired objectives set forth in the Will.

Any minor changes to a Will can be done by attaching a codicil to your Will. A codicil can attach or revoke certain clauses and should be executed in the same manner as the Will. Note that it is very important that codicils be kept with the Will that it is amending.

Living Trust

A living trust refers to a trust that may be revocable by the trust creator or settlor (known by the IRS as the Grantor). Living trusts are often used because they may allow assets to be passed to heirs without going through the process of probate. Avoiding probate will normally save substantial costs (the probate courts, in some states, charge a fee based on a percentage net worth of the deceased), time, and maintain privacy (the probate records are available to the public, while distribution through a trust is private).

The Parties to the Trust

Grantor/Settlor

The person who sets up the trust, also called the settlor, trustor, or trust maker.

Trustee:

This is the person who will manage the trust assets.

Successor Trustee

Where the Grantor is a Trustee, the Successor Trustee is the person who will manage the trust assets when the Grantor dies, or in the event the Grantor becomes incapacitated. Upon the Grantor’s death, the Successor Trustee will immediately have the same powers that the Grantor had as Trustee to buy, sell, borrow, or transfer the assets inside the trust. Also, the Successor Trustee has the right to distribute the trust’s assets according to the Grantor’s instructions in the trust instrument. The Successor Trustee does not have the legal right to change the trust. The trust becomes irrevocable upon the Grantor’s death. The Successor Trustee has the right to manage the assets in the estate, but must do so for the benefit of the remainder beneficiaries. At the Grantor’s death, the Successor Trustee automatically takes over without court order, pays any debts, expenses and taxes directed to be paid by the terms of the written trust document, and then distributes the property to the trust beneficiaries. Where the trust is scheduled to terminate on the Grantor’s death, and the trust is merely a means of avoiding probate, the death beneficiary should ordinarily be named Successor Trustee.

Beneficiaries

The people who will receive the benefit of the trust’s assets are called beneficiaries. Sometimes, the grantor is the original beneficiary. Those who take after the grantor's death are “remainder beneficiaries."

Establishing a Living Trust

To establish a living trust, an individual transfers title of his assets from himself as grantor, to a trustee of the trust (often the trustee and grantor are the same person), to administer for the benefit of himself and at least one other person. The trust may also name the remainder beneficiaries who will take after the grantor dies. The beneficiaries get nothing until that person dies.

Power of Attorney

A Power of Attorney is a legal instrument that is used to delegate legal authority to another. The person who signs a Power of Attorney is called the Principal. The Power of Attorney gives legal authority to another person (called an Agent or Attorney-in-Fact) to make property, financial and other legal decisions for the Principal. The word attorney here means anyone authorized to act on another’s behalf.

Types of Power of Attorney

General Power of Attorney - A "general" power of attorney is unlimited in scope and duration, and permits the named individual to act as your legal representative in relation to financial matters until such time as it is revoked.

Specific Power of Attorney - A "specific" power of attorney imposes limits upon the named representative, and may restrict the scope of that person's powers to a single type of conduct or a single transaction.

As long as you remain competent to manage your own legal affairs, you may terminate any power of attorney that you have previously executed. To the extent possible, you should collect and destroy the original powers of attorney and any copies, so as to avoid confusion or misrepresentation at a later date.