Unlocking Estate Planning: Wills vs. Trusts Explained

Could an estate plan be your golden ticket to safeguarding your family’s future? Join me, Stacey Hyde, as I unravel the intricacies of wills and trusts in this enlightening episode of Better Financial Health in 15 Minutes or Less. You'll gain a clear understanding of the critical differences between a will and a revocable living trust, including how each handles your assets—from real estate and personal belongings to joint accounts and beneficiary-designated assets like IRAs and life insurance. This episode promises to equip you with the knowledge to avoid common pitfalls, such as unintentionally disinheriting family members. 

Explore the often-overlooked advantages of revocable living trusts, including the privacy they offer by bypassing the public probate process. Discover why financial institutions might prefer working with trustees rather than relying on powers of attorney, and learn how a trust can simplify asset management, especially if you own property across multiple states. Whether you're planning your estate or simply curious about the process, this episode is packed with insights to ensure your legacy is protected and managed according to your wishes. Remember, while this episode provides essential information, consulting a legal professional for personalized advice is always recommended.

Envision Financial Planning. 5100 Poplar Avenue, Suite 2428, Memphis TN 38137. (901) 422-7526, This communication is strictly intended for individuals residing in the United States. Advisory Services offered through Envision Financial Planning, a Registered Investment Adviser.

Transcript

Speaker 1: 0:00

Hi, I'm Stacey Hyde and I'm back for another episode of Better Financial Health in 15 minutes or less, and we're often asked for a recommendation on whether someone should have a will or whether they should have a trust, and so I'd like to kind of give a little bit of background on why one might be better for you. Of course, check with an attorney. This is general information. But a will comes into existence when you pass away. But what you have to understand is what is not going to be covered by your will. If you have a joint account you own jointly with somebody else and they're still alive, that's not going to go through your will. That's going to go to the survivor of that account. That's why it can be dangerous to add one of your children onto a bank account, because if something happens to you, that child gets it all. It doesn't matter what your will says. If you have an IRA account with beneficiaries, that's not going to go through your will. If you have life insurance with beneficiaries, that's not going to go through your will. If you have life insurance with beneficiaries, that's not going to go through your will. Anything that is covered by a beneficiary designation or you own jointly is going to go. According to the account title, what will pass through your will is any real estate, any accounts in your individual name a car, personal property, that sort of thing that could be subject to probate.

Speaker 1: 1:31

What a trust does and in this case we're talking about what's known as revocable living trust so it's a trust that you set up while you're alive and it takes ownership of your assets your bank accounts, your after-tax investment accounts. You generally don't want to put your IRA accounts in the revocable living trust because there can be some bad tax consequences with that. You can put your house in there, particularly if you have property in more than one state. You could be subject to what's called ancillary probate. That means you have to probate where you live, but you also have to probate wherever you own property, because that's a requirement if you own property. But if your living trust owns title to that property, you do not have to do that, which can really streamline the process for your heirs.

Speaker 1: 2:26

The other big benefit to an invocable living trust is any will that goes through probate is public or somebody dies without a will. That's also public information all their assets, if you don't necessarily want your nosy brother-in-law knowing what you had and what you're giving to different people. A trust is a great way to do that privately, because the trust owns it and it just passes ownership or potentially leaves it in trust. And then a trust can also be set up under a will or under a trust. So your will could say I'm going to leave these assets to my spouse and then when my spouse is gone it goes to my kids and it's going to stay in trust and maybe distribute out at certain ages. Your revocable living trust can do the same type things, except it's all very private at that point, although once the will is probated and those trusts are set up under your will, that stays private going forward.

Speaker 1: 3:30

The other nice thing about a revocable living trust is it doesn't change the tax treatment of any of your assets while you're alive. It uses your Social Security number, so you don't have to file an extra tax return. It's actually very, very easy. It can also make it easier if you're worried that you may not always be able to manage your own affairs and you want to make it easier on the person who will.

Speaker 1: 3:56

Banks and financial institutions get really, really nervous around powers of attorney because there's been so much fraud there, whereas if you're the trustee and you said, well, if I can't do it anymore, I can resign and my granddaughter's going to take over managing my assets, well, at that point they become the trustee of the trust and that's an easy way to just move forward on that.

Speaker 1: 4:23

They don't have to worry about it. There's no filing or anything and, generally speaking, financial institutions are very okay with acting on the instructions of a trustee because it's governed by this trust document. So that's really the difference. If all your assets, or the bulk of your assets outside of, maybe, a home, are in IRA assets and then everything is joint with your spouse, you probably don't need a trust because everything's going to be taken care of by beneficiaries anyway, and it's a little bit cleaner, less expensive to get drafted. If you've got multiple real estate holdings, a lot of after-tax assets and always if you've got a special needs child, you need to make sure that the trusts are set up properly so that they can maintain their governmental benefits. So those are really the keys there and who might want to look into having a revocable living trust? Thanks so much for tuning in. This has been another episode of Better Financial Health in 15 minutes or less.