The Difference Between Wills and Trusts

The Difference Between Wills and Trusts

by | Apr 5, 2022 | Avoiding Probate, Estate Planning, trust

Establishing an estate plan that clearly lays out your instructions for asset distribution is one of the greatest gifts you can give to the people you care about. Two of the most important ingredients to ensure your assets and loved ones are protected are wills and trusts. These legal instruments are often confused with one another, making it difficult to discern which option is right for you. What are wills and trusts? How are they different? When should you use wills vs trusts? 

What follows is answers to these questions (and more), to help you make the best decisions for your family, and your legacy.

What are Wills and Trusts?

Wills and trusts both outline instructions for how you want your assets distributed, so you’ll see some overlap in what each is capable of doing, and the advantages and disadvantages of each. One of the major differences is when and how each becomes effective.

Wills

A will is considered a “simple” document, providing instructions for how you’d like your assets to be distributed. In your will, you’ll name an executor who will be responsible for distributing your assets per your wishes. Additionally, a will allows you to name a guardian for minor children and pets, forgive debts owed to you, and provide any additional instructions for such matters as funeral arrangements, and how taxes should be paid.

Trusts

A trust is a bit more complicated than a will, establishing a separate legal entity that holds legal title to your assets, and naming a trustee to manage and distribute those assets on your behalf, should you become incapacitated or pass away.

While there are many different types of trusts, they can all be classified in one of two ways:

  • Revocable (Living) Trust: This document allows the trustor to create the trust, retitle assets to the trust, assign a trustee, and make alterations, amendments, or terminations while they are living. This type of trust allows you to make an impact while you’re still alive, while giving you the flexibility to easily make amendments as life circumstances change.

  • Irrevocable Trust: This type of trust also assumes asset ownership, but cannot be altered, amended, or terminated by a trustor without the permission of his or her beneficiaries. While more restrictive than revocable trusts, this type of trust offers tax benefits that a revocable trust does not. 

Will vs Trust: What’s the Difference?

Both wills and trusts will help you handle your estate planning affairs, but there are some key differences that may help you decide whether your unique situation requires one or the other—or even both—options.

  • Effective Date

As aforementioned, one of the key differentiators of wills and trusts is when they go into effect: a will goes into effect upon death, while a trust becomes effective immediately upon funding and signing it. 

  • Privacy and Probate

All wills must undergo an often-arduous, time-consuming, and expensive probate process, which becomes public record and is accessible to anyone. Trusts, on the other hand, are not subject to probate and remain private. This can make trusts an attractive option for those seeking a faster and more private estate administration process for their beneficiaries…and one that is protected from the challenges often presented in probate court.

  • Property Coverage

A will covers any property solely owned by the grantor at the time of death, but does not cover property held by a trust, or any jointly owned property. A trust will only protect the property that has been transferred to it. Anything outside the trust may be subjected to probate.

  • Cost, Complexity and Maintenance

Wills created by an estate planning attorney often contain more complex terminologies, but a will can be extremely simple, with some states even allowing handwritten wills. This simplicity keeps the cost of creating a will at a minimum and, since wills are typically only revised for major life events, maintenance costs are also low.

Since trusts require you to fund them by transferring title to your assets, they can be more complex, and it is highly recommended you work with a trust attorney to ensure your trust is fully funded, supported by proper documentation, and kept up-to-date as you acquire new assets, and as life changes. This continuous maintenance can add additional costs, but ensures you’ve got 100% of your bases covered.

Will vs Trust: Which one is right for me?

The first step in answering this question is to assess your situation, needs, and goals. Things like your age, wealth, marital status, minor children, special needs, and unique requests play a pivotal role in making this decision. Most people need a will, but a trust is not vital for everyone. Enlisting the help of an estate planning and trust attorney is always the best option to find the estate planning solutions that best suit your needs. Contact Miller Estate and Elder Law to begin your custom-tailored estate plan, or register for our next FREE estate planning workshop today to learn more about estate planning and asset protection.

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Estate Planning 101: Last Will and Testament

Estate Planning 101: Last Will and Testament

by | Nov 12, 2021 | Elder Law, Estate Planning

last will and testament

For many, when they hear the term “estate plan” they immediately think of a last will and testament. While a last will and testament is not the entire estate plan, it is an important part of it. Let’s take a deeper look at what exactly a last will and testament is. 

Last Will and Testament, Defined

The last will and testament is a legal document that communicates a person’s final wishes as to how they want their assets distributed when they pass away, medical care, and dependents.  In the last will and testament, a person can leave instructions as to whether they want certain people to get certain assets, or whether they just want their assets divided among their heirs. In addition, if there are minor children involved, a last will and testament can include instructions for who would raise their children, as well. 

How Does a Last Will and Testament Work?

A person can write their last will and testament while they are still alive and of sound mind. When they pass away, the instructions will be carried out by a named personal representative (also called an executor or executrix) of the estate. The personal representative is normally named when the will is initially drafted.

Necessary Requirements

Since the last will and testament is vital to distributing the assets of a person’s estate, there are a few requirements that must be met in order for the will to be considered valid. 

First, the person who is writing the will must be of sound mind and mentally capable. For example, someone who has severe dementia would not be able to write a will, or make changes to their existing will. In addition, for a will to be considered valid, not only should the person signing it be of sound mind, but two unrelated and mentally sound witnesses must sign it, as well. If these requirements are not met, then the document will not be considered legally binding. 

What a Will Doesn’t Do

While the last will and testament is the foundation of a solid estate plan, it should not be the only part of an estate plan. This document outlines your wishes, but does not grant any individual the ability to make medical or financial decisions for you if you were to become incapacitated, but not die. It also cannot protect your assets from creditors, or from the costs of long-term care if that becomes necessary. A power of attorney, advanced directive, and trusts are other planning documents that you need considerations to consider include in your estate plan. 

The best way to ensure that your estate plan is complete is to speak with an estate planning attorney. If you have questions about creating a Last Will and Testament—or an estate plan altogether—we encourage you to contact Miller Estate & Elder Law at (256) 251-2137 or or register for one of our free estate planning workshops.

 

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Estate Planning During a Pandemic: 3 Reasons to Quit Stalling

Estate Planning During a Pandemic: 3 Reasons to Quit Stalling

by | Nov 10, 2021 | Asset Protection, Estate Planning, trust

pandemic

It is hard to believe that we are heading into our second winter season while still in the midst of a pandemic. At this point, Coronavirus has taken a toll on our finances, as well as our physical and mental health. Most people likely know someone who has been seriously impacted by Covid-19, and it is worrisome. To add some peace of mind to this otherwise stressful situation, right now is an opportune time to make sure your health and finances are appropriately protected with an effective estate plan. 

Many people think that estate planning is only for the wealthy, but this is simply not the case. Estate planning ensures that someone you trust will be able to make medical and financial decisions for you, should you become incapacitated. Estate planning can also ease the process of settling a person’s affairs after they pass away, helping your family and loved ones avoid emotionally-draining, lengthy, and costly legal affairs. Without a plan, the probate court will appoint someone to manage your financial affairs—and ultimately, the transfer of assets upon death—following intestate laws governed by the state. 

Consider these three reasons for why now is a better time than ever to plan your estate:

A Plan for You

An estate plan is not just for when a person dies, but it can also protect someone in the event that they become incapacitated or cannot make decisions for themselves—for example, if someone was placed on a ventilator. Entrusting a specific family member or loved one to make medical or financial decisions on your behalf can help ensure your needs will be met, and that you will receive medical treatment in alignment with your beliefs and wishes. There are several estate planning documents that help protect your own best interests. 

Your healthcare power of attorney designates an agent to act on your behalf, or be your representative, in situations where you are unable to make decisions regarding your own healthcare. A living will is also something to consider, as it includes an advanced healthcare directive, which provides instructions for end-of-life care.

A durable power of attorney may be one of the most important pieces in your estate plan. This document gives someone else the power to act on your behalf in financial and legal situations. Being “durable” means that the authority of the individual you have assigned remains, even if you become incapacitated. The power of attorney stays in effect until you die, or revoke the document.

A Plan for Your Children

So many things right now are uncertain with the pandemic, and sometimes there doesn’t seem to be a rhyme or reason to why things happen. If you are the parent of minor children, they need to be protected in case the unthinkable should happen. An estate plan will help ensure that children are cared for by approved guardians if the parents die before they turn 18. Without legally binding documents in place, the courts could be responsible for deciding who will raise your children.

A Plan for Your Assets

With no documented estate plan, such as a will or living trust, the state in which a person resides will typically decide how assets will be distributed after a person dies. By having an estate plan, however, the courts will have clear (and legal) documentation about how assets should be transferred upon death. This can save a family time and frustration, and ensure that assets are dispersed in the intended manner.

A last will and testament dictates who will serve as the executor or personal representative for your estate, what power they have, and what they will be responsible for after your death, for example, collecting documents, paying debts, and distributing assets. The last will and testament also identifies how, when, and to whom your assets or property should be transferred. 

A living trust is also known as a revocable living trust, and is a legal document that allows the transfer of assets from a trust to your beneficiaries—without needing to go through probate court proceedings. 

Note that everyone has unique needs when it comes to estate planning, and the above considerations are just some general guidelines for you to think about. It is most important that you reach out to Miller Estate & Elder Law to help you craft an estate plan that fits your specific situation and needs.  Give us a call at 256 251-2137 or register for one of our free estate planning workshops.  

 

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Estate Planning for Business Owners: Your Guide to Getting Started

Estate Planning for Business Owners: Your Guide to Getting Started

by | Oct 25, 2021 | Asset Protection, Business, Estate Planning, trust

estate planning for business owners

As a business owner, life can be hectic. Someone who chooses to take an entrepreneurial route often has to learn how to juggle managing their business with family life, in addition to actually doing their jobs! So many business owners put their blood, sweat, and tears into creating a profitable business. However, the job does not end here. As an entrepreneur, it is critical to implement an estate plan to protect the business you’ve worked so hard to grow. 

Appoint a Financial Power of Attorney

A financial power of attorney would appoint someone you trust to oversee your finances if you become incapacitated or worse. As a business owner, you more than likely have a more complicated financial situation than most. It is imperative that you choose someone who you not only trust, but who also understands the financial situation of your business. Many business owners will appoint a trusted CPA as their financial power of attorney.

Draft a Living Trust

Most business owners have several assets that are tied up in their business. These assets may even be essential to keep your business running. This is why it’s vital to create a living trust. A living trust is a legal document that will outline your directions for asset management and/or distribution, and will also name a legal entity or person as the trustee who is responsible for making sure your wishes are executed. 

One thing to keep in mind is that living trusts are not something you can draft once, and then forget about. As your business grows and assets change, it is important to remember to update your living trust in order to better protect your business. 

Create a Business Succession Plan

A business succession plan is a critical blueprint for any business owner who plans to one day transition ownership of their business. A succession plan is something that shows stakeholders your expectations of the business transition, and also outlines important company operations, mission statements, and visions for future owners. A business succession plan is a necessity for anyone who wants to protect the legacy of the business they worked so hard to create. 

If you have questions about creating an estate plan for business owners, we encourage you to contact Miller Estate & Elder Law at (256) 251-2137 or register for one of our free estate planning workshops.

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Medicaid Asset Protection Trusts, Explained

Medicaid Asset Protection Trusts, Explained

by | Oct 18, 2021 | Estate Planning, Medicaid, Medicaid Planning, trust

asset protection trusts

Studies have shown that almost 70% of adults turning 65 will need long-term care at some point during their lifetimes. While long-term care is an amazing resource to many Americans and their families, it is also extremely expensive and can cost around $266/day in the state of Alabama. However, if you are eligible, Medicaid can help pay for long-term care. While Medicaid’s income and asset restrictions are strict, there are estate planning tools—like the Medicaid Asset Protection Trust—that can help you qualify for Medicaid, while also preserving your life savings. 

What is a Medicaid Asset Protection Trust? 

A Medicaid Asset Protection Trust (MAPT) serves to protect your assets if you or your spouse needs long-term care. A MAPT is designed to help you avoid draining your assets if you don’t have long-term care insurance, but need to pay for nursing home care. 

Medicaid pays for long-term care, but it can be difficult to qualify…which is where the MAPT steps in to play. To qualify for Medicaid, the state will generally look at your income and assets.   If you’ve worked hard to obtain a healthy savings account and own your home, you may not qualify, unless you spend down your assets. A MAPT, however, allows you to avoid that potential scenario. 

How Does a Medicaid Asset Protection Trust Work?

A MAPT is a type of irrevocable trust, which means that once you place your assets in the trust you cannot take them back out. The type of assets you can include in a MAPT are:

  • Savings Account
  • CD’s
  • Investments accounts
  • Cash value life insurance policies
  • Your primary home and other real estate 

Benefits of a MAPT

The main benefit of a MAPT is that it protects those assets placed into the trust so they are exempt when you attempt to qualify for Medicaid. When a couple has to spend-down their savings and assets, this can shrink the size of the estate that is left to a surviving spouse or family members. Selling off assets can also have certain tax implications if you’re required to pay capital gains on the sale. A MAPT allows you to avoid these situations. 

Special Considerations to Keep in Mind

While MAPTs are put in place to help you protect your assets in order to qualify for Medicaid, it’s important to remember the look-back period. The look-back period for Alabama is 60 months prior to your Medicaid application date. So, if you want to use a MAPT to protect your assets, then it’s wise to create one sooner rather than later. 

Another important consideration is that this type of trust is irrevocable, which means that once assets are placed in the trust, they cannot be taken back. It is vital to ensure that you are comfortable with the permanent transfer of your assets into this trust. 

Talk with an Estate Planning Attorney

Everyone has a unique financial situation and estate planning needs, so it is extremely important to talk to an estate planning attorney who can help you understand all of your options, and which may be best for you, your family, and your assets. 

If you have questions about creating a Medicaid Asset Protection Trust—or an estate plan altogether—we encourage you to contact Miller Estate & Elder Law at (256) 251-2137 or register for one of our free estate planning workshops.

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4 Common Mistakes to Avoid when Preparing Your Estate Plan

4 Common Mistakes to Avoid when Preparing Your Estate Plan

by | Sep 30, 2021 | Estate Planning

estate planning mistakes

When most people set up their estate plan, they do so with the intention of making sure their assets are “passed down” to friends and family members in alignment with their wishes. However, there are several critical (yet easy-to-make) mistakes that could derail the entire estate planning process and leave your loved ones scrambling through a time-consuming—and oftentimes costly—probate process.

Here are 4 estate planning mistakes you’ll want to avoid:

#1. Failure to Create a Plan in the First Place

By most estimates, 50-60% of Americans do not have a last will and testament in place. While thinking about how you would like your assets distributed after you die is uncomfortable at best, it is necessary. If you die without a last will and testament, neither your family nor the courts will know how you want your assets distributed. Your estate will have to be probated using estate administration, which can be stressful, time-consuming, and costly for your family members, and your assets will be distributed following the state’s intestacy laws rather than your own wishes.  As a result, your assets could go to heirs that you do not want to receive them!

#2. Lack of Communication

Communicating with your family and loved ones about the wishes and intentions outlined in your estate plan can eliminate surprise and hurt feelings later. Not explaining your plan could create a rift between your family and friends after you die, especially if the estate plan is not what they expected. Even though open communication may be uncomfortable at first, it can mitigate any negative feelings and allow for a much smoother transfer of assets when the time comes. No one wants their legacy marred by drama or altercation, and clear communication can prevent that from happening.

#3. Overlooked Essentials

One of the most common mistakes made in regard to estate planning is overlooking important tax implications. Consulting with an estate planning attorney or financial advisor can help you make decisions that will ultimately prevent your family from owing hefty taxes at your death.

#4. Setting it and Forgetting it

Another common estate planning mistake is forgetting to update your estate plan. Just because you created an estate plan doesn’t mean that the work is done. When life changes occur—whether that be divorce, the addition of a new family member, a family member struggling with addiction issues, etc.—you should make it a priority to update your estate plan to reflect those changes. Having an ex-spouse inherit your hard-earned assets after a tragic accident would only add insult to injury. We recommend an annual review of your estate plan.

If you have questions about your own estate plan or are interested in starting your own, we encourage you to contact Miller Estate & Elder Law at (256) 251-2137 or register for one of our free estate planning workshops using the brief form below:


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