Like most people, when you created your initial estate plan, you probably executed a Last Will and Testament and used that instrument to distribute your entire estate. As both your family and your estate grew over the years, however, you may have started to realize that additional tools and strategies may be needed in your estate plan to account for that growth. At some point, you may even consider incorporating a living trust into your estate plan and using that trust as your primary method of distributing your estate assets after you are gone. To help you decide, the Oklahoma City living trust lawyers at Parman & Easterday explain why a living trust might be a better option for distributing your estate assets.
Last Will and Testament Basics
By far the most well-known of all estate planning tools, a Last Will and Testament is a legal document that communicates a person’s final wishes upon death. Your Will allows you to make both specific and general gifts. For example, you might make specific gifts of your art collection along with stock in Apple to a designated beneficiary. You could also gift a percentage of your estate to your son. You could gift half of your entire estate to your daughter and the balance to a charity. Your Will is also where you will appoint someone to be the Executor of your estate. Your Executor plays a vital role in the probate of your estate after your death. Finally, a Will provides you with the only official opportunity you will have to nominate a Guardian for your minor children in the event one is ever needed after you are gone.
Yet, in most cases, today a Living Trust is the preferred estate planning tool to all this and more.
A trust is very similar to a contract. It creates a relationship whereby property is held by one party for the benefit of another. Here are the basics of how a trust is created and how it operates.
All trusts have three parties – a Trustor (sometimes Grantor or Settlor), a Trustee and one or more Beneficiaries. A trust is created by a Trustor (also referred to as a Settlor, Maker or Grantor), who transfers property to a Trustee. The Trustee holds that property (or multiple properties and assets) for the trust’s beneficiaries. X creates a trust and transfers assets into the name of Y, the Trustee, who holds those trust assets for the benefit of Z, the beneficiary.
All trusts are first divided into one of two categories – testamentary or inter vivos, meaning “during lifetime”. The inter vivos trust is more commonly referred to as a living trust since it is created during the Trustor’s lifetime. A living trust takes effect during the Trustor’s lifetime as soon as all the legalities of creation are in place. By contrast, a testamentary trust is a trust that arises upon the death of the Trustor, typically activated by a provision in the Trustor’s Will.
A trust agreement is also a legal document that is created to establish a trust. Assets are then transferred into the name of the Trustee of the trust. Assets held in the trust are distributed by the Trustee to Beneficiaries according to the terms of the trust. When used to distribute estate assets after the death of a Trustor, the trust terms will tell the Trustee when to distribute assets and which assets to distribute to which beneficiaries. Thus, the living trust becomes a “will substitute”.
Why Use a Living Trust?
Both a Last Will and Testament and a living trust can be used to distribute your estate assets. Some of the more common reasons why people choose to rely on a living trust as their primary distribution method include:
- They have minor children. Being a parent to a minor child is a major incentive for using a living trust to distribute your estate because a minor child cannot inherit directly from your estate. Therefore, a trust is a better option to guard your child’s inheritance until he/she reaches the age of majority. In addition, using a trust to protect that inheritance allows you to decide who will manage the assets held in the trust until your child is old enough to inherit them directly.
- They want to avoid probate. Probate can be time-consuming and costly. A Will is generally required to go through the probate process as are most assets distributed through the provisions in a Will. Trust assets, on the other hand, bypass the probate process entirely, allowing them to be distributed immediately after your death if you so choose. If your beneficiaries will need those assets right away, a trust is a better option.
- They want gifts to remain private. Because a Will goes through probate, the provisions of the Will become public record. If you prefer to keep the details of your estate plan private, a living trust is a better option because a trust agreement does not, as a general rule, become public record.
- They wish to retain a certain amount of control over gifted assets. Gifts made in a Will become the unconditional property of the beneficiary once the transfer of ownership is complete. A Trustee, on the other hand, manages the assets held in a trust and the Trustor creates the terms of the trust, allowing you to retain a certain degree of control over gifts you make using a trust.
Contact Oklahoma City Living Trust Lawyers
For additional information, please join us for an upcoming FREE seminar. If you have additional questions about the best method for distributing your estate assets, contact the experienced Oklahoma City living trust lawyers at Parman & Easterday by calling 405-843-6100 or 913-385-9400 to schedule your appointment today.