What Type of Will Do You Need?
Before creating a will, you need to determine which type is right for you. Believe it or not, there are different types of wills for all situations. Here’s a breakdown:
● Simple wills
● Mirror wills
● Joint wills
● Living wills
● Holographic wills
● Nuncupative wills
● Deathbed wills
● Testamentary trusts
Don’t let all those options overwhelm you. A simple will does the job for almost everyone. And if you’re married, get a mirror will for your spouse. A mirror will is drafted to be almost identical to your will, but it’ll have your spouse’s name as the testator (the person making the will). Not only can mirror wills save your loved ones from some legal headaches down the road, but they also give you and your spouse the freedom to give away your personal belongings to whoever you want.
Types of Trusts
There are several types of trusts, each designed to serve specific purposes in estate planning and wealth management. The type of trust you use depends on your individual goals, circumstances, and financial situation. Here are some common types of trusts and when they might be appropriate:
1. Revocable Living Trust: This trust allows you to retain control over your assets during your lifetime. You can make changes to the trust’s terms or revoke it altogether. It’s often used to avoid probate and ensure a smoother transfer of assets after your death.
2. Irrevocable Living Trust: With this trust, you relinquish control over the assets placed in the trust. It’s often used for estate tax planning, asset protection, and charitable giving. Once the trust is established, you generally cannot make changes to it without the beneficiaries’ consent.
3. Testamentary Trust: Created within a will, this trust only becomes effective after your death. It’s often used to provide for the needs of minor children, disabled beneficiaries, or individuals who may not be able to manage their finances.
4. Special Needs Trust (Supplemental Needs Trust): This trust is designed to provide for the needs of a disabled beneficiary without disqualifying them from government benefits like Medicaid and Supplemental Security Income (SSI).
5. Charitable Remainder Trust (CRT): This trust allows you to donate assets to a charity while retaining an income stream from those assets during your lifetime. It provides potential tax benefits and a way to support charitable causes.
6. Charitable Lead Trust (CLT): This trust provides income to a charity for a specified period, after which the remaining assets are passed on to non-charitable beneficiaries, typically family members. It can help reduce estate taxes.
7. Qualified Personal Residence Trust (QPRT): This trust allows you to transfer ownership of your primary residence or vacation home to beneficiaries while retaining the right to live in it for a specific period. This can help reduce the taxable value of your estate.
8. Family Limited Partnership (FLP) and Family Limited Liability Company (LLC): While not exactly trusts, FLPs and LLCs are often used in estate planning. They allow you to transfer assets, usually a family business or real estate, to the entity and then distribute shares to family members. This can help with tax planning and maintaining family control over assets.
9. Grantor Retained Annuity Trust (GRAT): This trust allows you to transfer appreciating assets to beneficiaries while retaining an annuity payment for a specific period. It’s often used for estate tax planning.
10. Dynasty Trust: This long-term trust is designed to pass wealth to multiple generations while minimizing estate taxes. It can provide ongoing asset protection and financial security for your descendants.
Another type is Medicaid Asset Protection Trust. I have created a separate page for it. We all know people who are worried about the government taking their house if they end up in a nursing home. It’s not necessary to lose your house. Check it out.
It’s important to work with an experienced estate planning attorney or financial advisor to determine which type of trust aligns best with your goals and financial situation. The suitability of a particular trust can vary based on legal, tax, and individual considerations.
Please remember the cost of an attorney or advisor for advance planning is much more cost-effective than the burden you would leave your heirs if you don’t preplan.