So, are you already looking forward to creating an estate plan? Then you are doing something you’ll never live to regret. Estate planning is an excellent and crucial step which everyone should take to secure their financial future and that of their loved ones. In estate planning in Bergen County, there are several documents which come into play, each serving its own purpose; such as a will, trust, durable powers of attorney, living will, insurance policy, guardianship and tax planning, among others. Of these, the most common are wills and trusts. So what exactly do wills and trusts entail?
Using a will
A will is an estate planning document that bears your desires concerning your asset distribution after your death. When you write a will, you are known as the testator of the will. You should state the names of those whom you want to inherit your property, and state exactly what part or amount that they will receive. You should also name an executor who will, after your death, carry out the instructions you’ve laid down in the will.
You can draft a valid will once you’ve attained the age of 18, meaning you don’t have to wait till you’re aged. Even though your possessions seem of very little value now, it is good you draft a will to ensure that whatever you have goes to those whom you want them to go to, should anything happen to you. As bad as it may sound, anything can happen to anyone at any time. If you have minors, you can also name a Guardian who will manage assets for your minors until they come of age if you pass away.
Downsides of a will
Although quite easy to establish, the process of executing a will is quite difficult and lengthy. This process is known as probate. In Bergen County, New Jersey, the Uniform Probate Code is not is use, meaning all the probate process has to be done, and this can take years to conclude. What this means is that your loved ones will not inherit your assets on time. There are huge expenses associated with probate.
Trusts
A trust is another document you can use in estate planning in Bergen County. It allows you transfer asset before and after your death easily, quickly and cost-effectively. A trust becomes effective immediately you transfer assets into it. The asset becomes a property of the trust — and will be disassociated with your name — and so will pass to your beneficiaries outside probate.
There are basically two kinds of trusts, each offering its own benefits. These are:
Revocable living trust
This kind of trust can be altered and cancelled after it is created. This means you can take assets to and from the trust at any time. You can be the trustee of your own trust, meaning you can use the trust’s assets until your death. The fact that you still have full access to the living trust assets means that they are not fully removed from your ownership and as such, the assets will still be subject to estate taxes and creditor invasion. If you desire to avoid estate taxes and get full asset protection, then you may consider creating an irrevocable trust.
Irrevocable trust
As the name implies, an irrevocable trust can never be changed once created. This means whatever asset you fund into the trust will remain a property of the trust until you die, preventing you from accessing or using the property. For this reason, you should be very careful selecting assets to transfer into an irrevocable trust. Bank accounts from which you may need to pay bills for your basic needs are never advised to be transferred into an irrevocable trust. An irrevocable trust allows quick transfer of assets before and after the Grantor’s death, and outside probate.
Benefits of irrevocable trusts over revocable trusts
- Asset protection – By permanently taking the name of the trust, the trust assets go beyond the reach of creditors.
- Tax avoidance – assets placed in an irrevocable trust are not subject to federal or state estate tax.
Benefits of revocable trusts over irrevocable trusts
- Can be changed at any time during the lifetime of the Grantor. Assets can be transferred to and removed from the trust.
- You can use the trust assets until your death, at which they will then pass to your heirs.
