Wills and Trusts Overview
Anyone who has watched television shows or movies could not help but have seen a plot line around the fate of a person’s assets on her death. Plots often center around a deceased’s wishes either being carried out or not being carried out, fights between potential recipients of a deceased’s assets, and disputes about decisions for an incapacitated individual. Unfortunately, these plots happen in real life everyday often leaving loved ones without means of support or care. Wills and trusts can cut out some of the uncertain and painful drama associated with life. Most people can benefit from having both wills and trusts. This article introduces wills and trusts.
Wills
A will is a person’s revocable declaration of property transfer that takes effect on death. Wills can be tailored for each individual’s unique objectives and circumstances. A will contains instructions on how property is to be distributed when the will maker is dead. For instance, who is to receive property, the type and amount of property involved, family relationships, and so on can be considered. However unique a will may be, there are several common elements usually associated with a will. These elements include:
- The will maker must be of legal age. Minors have no legal capacity to make a will.
- If the will maker is of unsound mind when making the will, the will probably will not survive any challenge to it. Sound mind means the will maker knows he is completing a will, understands the scope and nature of the property involved, and has knowledge of the named recipients. Under some circumstances such as leaving nothing to expected recipients, it may be wise to name specifically some nonrecipients to help show sound mental capacity.
- A will must have a significant property disposal provision and must clearly express intent that it be a will.
- In general, a will must be in writing. There are a limited number of circumstances under which an oral will or electronic will are valid, but these are rare.
- The will maker must voluntarily sign the will unless a circumstance such as illness, accident, or illiteracy prevents it. Under these circumstances a lawyer or witness can sign the will. Extreme care should be taken when the will maker cannot sign and professional counsel should be sought.
- Ohio law requires two competent adults to witness the will maker sign the will. The witnesses generally must be disinterested parties. That is, the witnesses are not to receive anything according to the will.
- A will must be properly executed. It should contain a statement attesting it is the will maker’s, the date and place of signing, and the will maker signed it in front of witnesses who then watched each other signing it.
A failure to contain these elements could risk the legality of a will and subject an estate to a state’s intestacy laws.
Intestacy: without a will
There are many kinds of wills. These include:
- Simple Will: Presents instructions for asset distribution of an uncomplicated estate.
- Testamentary Trust Will: Creates a trust that takes effect when the will maker dies.
- Pourover Will: Leaves assets to a trust created before the will maker dies.
- Joint Will: A will executed by more than one person.
- Living Will: While most wills dispose of property at death, a living will does not. A living will has force while the will maker is alive. It directs caregivers such as doctors and hospital personnel whether the will maker wants to be kept alive on life support should the will maker be unable to decide at the time needed.
Trusts
A trust is a fiduciary relationship in which a person or qualified trust company holds property for the benefit of himself or another. Trust property can be of many different kinds including money, stocks, bonds, real estate, business interests, and personal property. The holder of the property is called the trustee while the person receiving the benefit is called the beneficiary. The creator of the trust is called the donor. The donor makes the property available to the trustee who agrees to manage the property according to the donor’s directions.
Ownership of property placed in trust transfers from the donor to the trustee. However, the trustee has a duty to manage the property as stated in the trust agreement. Further, the beneficiaries of a trust have a right to benefit from the property in the trust according to the agreement.
Trusts can be used to accomplish many objectives including:
- Asset transfer: A trust can be used to avoid the probate thus saving inheritors time and money.
- Tax sheltering: Certain types of trusts can be used to manage taxation of property removed from an estate.
- Controlling assets after death: Conditions of property transfer can be placed in the trust agreement.
While there are many types of trusts, two important types to be aware of are the revocable trust and irrevocable trust. A revocable trust can be changed. However, in exchange for this flexibility it does not have the superior tax advantages of an irrevocable trust. An irrevocable trust cannot be changed. Other types of trusts include:
- Charitable Trust: A charitable trust benefits a specific charity, specific charities, or general public instead of a private party.
- Discretionary Trust: A discretionary trust allows the trustee to decide whether or how trust property or income is distributed to beneficiaries.
- Insurance Trust: The principal consists of insurance policies or proceeds.
- Living Trust: A living trust is created and takes effect during the donor's lifetime. The donor can also be the trustee and beneficiary. Living trusts provide an effective way to transfer assets at death.
- Spendthrift Trust: Beneficiaries who are unable to manage their own affairs are protected from themselves and creditors.
- Testamentary Trust: A trust created by a will.
Wills and trusts can be used together to accomplish many estate planning objectives. There is no single correct way to use wills and trusts, but a solid grounding in both is necessary to make wise estate planning decisions.
