SOUTHEAST WYOMING ESTATE PLANNING COUNCIL

Purposes of a Will

In addition to providing a plan for the disposition of property, a will allows the testator to:

 minimize or avoid estate costs—taxes, administration expenses and shrinkage of assets

 nominate a guardian for minor dependent children if there is no surviving parent

 make bequests of specific assets or assets that are unique or difficult to divide, e.g., family heirlooms or digital assets.

 make a bequest to charity

 nominate an executor or personal representative to carry out the terms of the will during the probate process

 grant the executor specific powers not otherwise available under state law (e.g., the power to continue operating the decedent's business)

 make the best use of the unified credit and the unlimited charitable and marital deductions. 

 provide income for the care of a mentally or physically handicapped child, parent or spouse

 provide for the close-in-time deaths of spouses, which may affect distribution of assets

 describe how estate settlement costs are to be paid, so they are not charged against particular heirs or bequests

Purposes of a Trust

A trust is a legal entity created by a "grantor"—an individual who wishes to have the trust manage property on behalf of the trust beneficiaries. The "trustee" takes legal title to whatever property the grantor transfers to the trust, while the beneficiaries hold the equitable or beneficial title to the trust property. That means they are generally entitled to the income and/or principal of the trust.

The trustee, as legal titleholder, can exercise most of the usual rights over trust assets. For example, the trustee can usually invest or sell the assets. But trustees cannot act in their own interest; they must act in accordance with the trust terms and their fiduciary responsibilities to the trust beneficiaries.

The trust agreement should always be in writing, and should be prepared only by an attorney who specializes in estate planning. After understanding the grantor's objectives, the attorney will draft a trust that addresses the following key issues:

 Who (if anyone) will receive the trust income, and how long do these income payouts (or the accumulation of income) last?

 Who will receive distributions of trust principal, and at what times?

 When will the trust terminate?

Avoiding Probate with a Revocable Living Trust

What is it? A revocable living trust is a legal entity created by a grantor who wants to use the trust to receive assets that the trust will manage and then distribute according to the grantor’s wishes. Because the trust is revocable, the grantor may alter, amend or revoke it at any time during his or her lifetime; but the trust becomes irrevocable (or terminates) at the grantor’s death. A primary reason for establishing such a trust is to avoid probate on the assets that are transferred during the grantor’s lifetime. Distribution of the trust assets can remain private, unlike assets that go through probate, a record open to public inspection.

How does it work? An attorney well versed in probate and estate work prepares a written trust agreement incorporating the grantor’s wishes. This includes: who will receive any income, who will receive the principal, when these distributions will be made, and when the trust will terminate. The trustee, who may be someone other than the grantor, then manages and administers the trust according to the terms of the written agreement. A revocable living trust may be a “shell” or “pour-over” trust, which means the trust is inactive while the grantor is alive. When the grantor dies, it receives certain assets. For example, the trust might receive the proceeds of life insurance policies and assets that have passed under the will after probate. At that point, the trustee then administers the now irrevocable trust according to the terms of the agreement.

What are the benefits? Here are the primary advantages of creating a revocable living trust:

• Assets transferred into the trust during the grantor’s lifetime avoid probate.

• A trustee who is not the grantor can manage the trust, relieving the grantor of administrative responsibilities.

• The trust can receive life insurance proceeds and probate assets after the grantor dies.

• Terms of the trust remain private; they are not subject to public inspection as a will is during probate.

• The terms of the trust control the distribution of trust assets according to the grantor’s wishes.

What are the disadvantages?

• The grantor derives no federal income tax or estate tax benefits from the trust. The grantor must pay current taxes on trust income, whether paid to the grantor or not.

• A trust is typically more costly to establish and maintain than a simple will.

• Assets in the trust remain subject to the claims of the estate’s creditors when the grantor dies.