While this is not the most fun topic, it is necessary. You have to decide how you want to distribute your assets after you die. After all, you want to ensure that your assets go where you want them to later on. Therefore, written plans become vitally important.
There are two primary options you can use to direct your assets once you pass away: wills and trusts.
Wills
Wills serve as formal legal documents that specify in detail who will receive the assets of your estate, also known as probate estate. Wills are legally binding documents. While they vary in length and structure, each typically include the following:
- Beneficiaries, who consists of people, institutions or organizations you'd like to receive your assets.
- Executor, which is the person who you have elected to ensure your instructions are followed.
- Guardian, which is applicable when there are minors listed as beneficiaries.
Trusts
Another way to ensure your assets get distributed the way you would like is by establishing a trust while you are still living. By placing your assets in a trust, your heirs avoid probate, which is the process of going through the court system to verify your assets are distributed in accordance with your will. Your can transfer property, assets, bank accounts, securities and real estate to the person named in the trust. You will need to appoint a trustee to take care of the trust and follow its directions. While there are various types of trusts, there are two fundamental distinctions:
- Revocable Trust, which can be changed, added to, taken from or stopped at any time by the person instating it.
- Irrevocable Trust, which can never be changed or revoked unless it specifically states it can. The value of an irrevocable trust is excluded from the estate value of the person who instated it.
While trusts can be created for many reasons, most financial advisors agree that they are usually best for people who have assets totaling more than $500,000.
Keep in mind that both wills and trusts allow you establish rights to your assets as well. Understand that the beneficiaries of your insurance policies, retirement plans and annuity contracts fall outside of your will or trust.