Annuities have been around for more than four centuries, but they are still proving to be helpful in modern retirement planning. Here is everything you need to know about them.
Wills
A will is a legal arrangement that has several important functions and usually requires at least one witness. (State requirements vary, for instance, two witnesses are required in Arizona.)
A will is used to designate your chosen guardian/s for any minor children, it gives instructions on how you desire your assets to be distributed upon your death, and it names beneficiaries of your estate and what they are to receive. A will allows you to choose an executor, who is the person responsible for overseeing the distribution of your assets.
The important thing to remember is that a will is often subject to probate. The probate court process goes into the public record, determines the validity of the will, considers any objections and pays any remaining creditors. Probate can take several months—but probate can take even longer if you die without a will.
Trusts
There are different types of trusts, but basically a trust allows an individual—the trustor—to assign their assets which get distributed to trust beneficiaries through the trust by another third party, called the trustee. The trustee is often another individual, a bank or an attorney, and they have the responsibility of transferring title of the assets to the trust’s beneficiaries.
Usually, two important goals of a trust are to 1) keep the arrangement private and 2) avoid probate.
A trust, however, doesn’t allow you to name a chosen guardian for your minor children, dictate funeral arrangements or determine who gets personal property items not specifically named in the trust. This is why a trust should always be accompanied by a will, sometimes called a “pour-over” will.
Not everyone needs a trust, but it’s helpful if, for example, you have heirs who will be receiving your assets when they become adults because a trust can specify milestones or requirements—like reaching a certain age, graduating from college, having a child, etc.—that must be met before assets will be transferred to them. A trust is also commonly used to assign assets to a charitable organization or help transfer valuable assets in a tax-advantaged manner.
Remember, wills and trusts aren’t just for the wealthy—just about everyone has assets of one kind or another. These estate planning tools help you dictate how and when they are to be distributed. It’s important to get professional help that should include an estate attorney familiar with state law, especially if the estate is complex. For less involved estates, there are less expensive options which can serve some families well.
