Do I Need A Will and a Trust?
Congratulations!!! It’s been a big year. You got the promotion and raise. You have started to fund your 401(k) plan. You’re thinking about buying your first house and you’re going to be a new parent!!!! These and many similar items are what I like to refer to as the first steps toward “financial” adulthood. It’s not a matter of getting old. It’s a matter of new responsibilities.
Unfortunately, as your career, your financial holdings, and your family grow, your planning responsibilities grow as well. As you start to acquire all of the various things included in the “American Dream” you are going to be faced with the need to have certain legal documents that you heard your folks talk about. When these documents start to become a necessity, they usually start with what is called the estate planning process which always begins with the writing of your last will and testament and the consideration of creating a living trust.
The purpose of a will is to protect your loved ones from the legal hassles of dying without one. In simple English, your will instructs the person in charge of your estate (this person is called an Executor whom you get to choose with a will) to distribute your assets to who you want them to go in the event of your death. This becomes pretty important once you are married and/or start to have kids. If you die without a will, a legal proceeding (which takes place in what’s known as probate court) may be required in order to administer the estate. This is costly and requires legal representation. A will also allows you to name who you would like to be the “legal” and “financial” guardians of any of your under-age children. This is a major and very real concern of parents who certainly don’t want a court to decide this issue.
Along with the drafting of your will, you should also consider creating what is called a “living trust”. The purpose of this trust is to account for your assets prior to death so that the aforementioned probate court does not have to. While the creation of this trust does not save you estate (death) taxes, it does eliminate the need to go to court (which again saves attorney’s fees that are based on the total amount of your estate, not the “net” amount). You still own and are in charge of the assets. You can sell them and acquire new assets during your life. The main difference is that when you buy real estate, open certain brokerage or bank accounts or participate in any number of different investments, you will hold them in the name of the trust instead of your own individual name.
This is a complicated area and cannot be fully explained in a couple of paragraphs. The “take away” from this blog post is that given your situation is getting more complicated, you should consider looking into the creation of a will and trust for yourself and get some professional advice in this area. It will be worth it.
Russ Wertz – Founder and CEO of Wertz & Company, LLP, a Professional Services Firm located in Orange County, CA that specializes in working with entrepreneurs along their journey to success.