Organizing our assets for distribution to others is obviously important. Even if we have carefully managed to set aside just a little more then we need, gifts will mean a great deal to loved ones. Planning also saves families from stress down the road. Additionally, careful plans address the needs of minor children, those with special needs—and even our own as we age. Read on to understand how wills and trusts work in estate planning.
Distributing Assets and Arranging for Care
At the guts of solid estate planning is the clear designation of the beneficiaries who will ultimately receive our assets. Both wills and trusts are solid tools that can detail plans for the distribution of our assets. Wills also allow for the naming of a guardian for minor children—making them especially essential for young families. Because of their flexibility, trusts can become increasingly important for families as they plan for both the care of aging elders and individuals with special needs. As Frank & Kraft sum up: “For most people a Last Will and Testament provides the foundation on which their estate plan is built; however, a trust agreement may eventually be just as important.”
It’s typical for younger adults to begin an estate plan with a Last Will and Testament and add on trusts as life evolves. Estate planning experts point out:
A simple Will can gift specific items to beneficiaries or can direct a broad distribution of estate assets….The ability to make specific bequests…is one of the most important benefits to creating a Will. In the absence of a Will, your estate assets will be distributed according to the intestate succession laws of your state of residence at the time of your death. Those laws require your estate to be divided among survivors according to percentages. Often, this means that estate assets are sold, and the proceeds used to create the required distribution….The other role your Will can play is to allow you to nominate a guardian for a minor child….The only opportunity you have to let the court know who you wish to be your child’s guardian is in your Will.
As life evolves, trusts can become very helpful tools for the management, protection and distribution of assets. For example, assets can be placed in a trust with agreements specifically spelling out how they are to be used for the care of an individual with special needs, in support of educational, career or charitable goals, and even for pets. Importantly, trusts can even be arranged to attend to our own needs as we age. Trust experts further note:
- A living trust helps your estate avoid probate. Unlike assets distributed by a Will, trust assets bypass the probate process entirely because a trust does not have to be submitted for probate.
- A living trust allows you to maintain some control over the assets you gift. When you use a living trust to distribute assets you can also use the provisions of the trust to maintain a certain degree of control over the assets you gift.
- A living trust can protect the inheritance of a minor child. A minor child cannot inherit directly from your estate. As such, any assets gifted to a minor child in your Will must be held and managed by an adult until your child reaches the age of majority. Therefore, a trust is a better option to guard your child’s inheritance because it is set up with a Trustee whose job is to do just that — manage trust assets.
Designating A Fiduciary: Executors and Trustees
An important step in working with an estate planning attorney is the designation of a fiduciary to administer the will (i.e., the executor) or trust (i.e., the trustee). These individuals have significant responsibilities, so be sure they are aware of their commitment and proactively arm them with the information needed.
Fiduciary bonds are a common requirement for the protection of the estate and its beneficiaries in accordance with applicable state law. Essentially, fiduciary bonds, such as executor bonds and trustee bonds, guarantee the faithful performance of the appointed administrator. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain an executor bond or a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere—even the law office.
Good To Do: Periodically Update Plans
Unfortunately, given the layers of decisions and arrangements involved, making an estate plan is not a “one and done” responsibility. Lawyers underscore the importance of reviewing the plans every few years and making adjustments based on life shifts. Changes in the family brought on by births, marriages, special needs, declines in capacity or deaths are all examples of why estate plans periodically need attention. Then too, shifts in assets, debt status and market volatility might raise new questions for the estate plan. Even fundamental assumptions related to the availability of the designated executor or trustee sometimes need to be revisited. For example, new job demands, relocations or personal challenges may leave an executor or trustee unable to perform the responsibilities previously agreed upon.
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