Wills & Trusts
What is a Will?
A Last Will and Testament, commonly referred to as a “Will” is a legal document that is signed by a person during his/her lifetime, which directs to whom that person’s assets are to be distributed upon the person’s death. The Will-maker is commonly referred to as a Testator (male) or Testatrix (female) and those who receive distributions of real and tangible property are called devisees, also known as beneficiaries. When the Will-maker dies, he/she is referred to as a "decedent."
Common Misconceptions About Wills
A common misconception is that a Will is a document that has effect during one’s lifetime. To the contrary, a Will only becomes operative when the Will-maker (Testator/trix) dies and has no effect during the Will-maker’s lifetime. A Will does not avoid Probate and in fact may be fully administered through the Probate Court where the decedent resided and/or owned real estate during his/her lifetime.
What is Probate?
Probate is the legal process that oversees an individual’s assets upon his/her death. Probate is not private, and Wills filed with the Probate Court upon a person’s death are public record, as are all assets passing to beneficiaries by the decedent's Will.
Why have a Will?
Whether you have many assets or just a few, having a Will makes good practical sense because most people prefer to choose who will receive their assets after their death. The laws of intestacy (dying without a Will) in Massachusetts do not necessarily favor those whom a person intends to benefit. This is especially true of individuals who are not married or are married but without children.
Lack of planning can lead to unintended and financially devastating circumstances for loved ones left behind. Even if an individual has no assets, if that person has minor/dependent children, it is imperative that he/she have a Will in order to name Guardians for the children in the instance of the individual’s death. Although the Probate Court will preside over a Guardianship proceeding and make the final decision, there is much more certainty that those whom a decedent has chosen to care for his/her minor dependent children upon his/her death will be appointed to serve as Guardians if the decedent has made his/her wishes regarding Guardianship clear in a Will. Having a Will, if for no other purpose than to name Guardians for minor dependent children, provides a sense of security for many parents in planning for their children’s future.
Does a Will Deal with All Assets?
Not all assets owned by a decedent automatically pass in accordance with a Will. Specifically assets that pass by “operation of law” and “operation of contract” are not generally Probate assets, thus they do not normally pass in accordance with a decedent’s Will.
Assets that pass by operation of law include joint property (i.e., jointly held real estate, jointly held bank accounts, and other assets held in the form of joint ownership). Real estate held as tenants by the entirety by spouses is also considered joint property.
Assets the pass by operation of contract generally include such assets as life insurance, annuities and retirement plans, and any contract asset wherein the owner has named a beneficiary who is to receive the asset upon the owner’s death.
Despite some advantages to these sorts of assets passing outside the direction of a Will, generally speaking, placing assets into joint ownership or naming multiple beneficiaries in order to avoid the Probate process is not the best solution and can have unintended and undesirable consequences.
Is Just Having a Will Enough?
Placing all planning emphasis on a Will does not optimize disability or incapacity planning because a Will is only effective upon the death of the individual. If an individual becomes unable to handle his/her financial or physical matters during his/her lifetime, the Probate Court will likely be involved in appointing a Guardian and/or Conservator to handle matters for the incapacitated individual. Proper planning through use of health care directives, Durable Powers of Attorney and Trusts can appropriately plan for the unfortunate instance of incapacity/disability and avoid the expense, delay and publicity of a Guardianship or Conservatorship Probate proceeding.
Despite the lack of privacy, expense and delay of Probate, it is still important for all individuals to have a Will, even if a person has done more extensive planning (such as a Revocable Living Trust) because the Will serves as a "catch-all" of sorts for assets that might not have been funded to one’s Trust during his/her lifetime. Even more important is the matter of Guardianship for minor/dependent children, because a Will is the document in which those with minor dependent children name Guardians. Regardless of any other estate planning completed, an individual with minor dependent children needs to have this document appointing Guardians because the Probate Court will always preside over Guardianship proceedings.
What is a trust?
A Trust is a fiduciary agreement (a contract) created during the Trustmaker’s (also referred to as grantor or settlor) lifetime which allows a trustee(s) to manage and hold the assets in the Trust according to the wishes and instructions of the Trustmaker, for the benefit of named beneficiaries of the Trust.
In many instances, especially in instance of a Revocable Living Trust, the Trustmaker is also a trustee of the Trust and assets in the Trust can be used to take care of the well-being of the Trustmaker during his/her lifetime, including in cases where the Trustmaker becomes physically or mentally incapacitated. Trusts can also control asset disposition upon that person’s death (much like a Will, but without the need for Probate Court to be involved to distribute the assets).
Benefits of a Trust:
Privacy and Probate Avoidance - If properly drafted and funded with a Trustmaker’s assets, a Trust can help avoid the expense, delay, and lack of privacy of processing a Will through Probate Court. You many not want to disclose the nature of what and when a beneficiary will receive an inheritance. Privacy considerations may also include a beneficiary’s special needs, mental illness, lack of financial control or understanding, estrangement, substance abuse, gambling, and other addictions.
Guardianship and Conservatorship – A Trust often avoids the need for the Probate Court to determine who will take care of a person’s financial affairs should they become incapacitated or disabled. A Will does not address this because a Will only becomes effective upon the death of the Will-maker.
Control – Think of a Trust as a private planning contract. Trustmakers specify exactly who should handle their financial matters and how it should be done, rather than leaving up to the discretion of the Probate Court.
Types of Trusts:
Revocable and Irrevocable Trusts
There are many different types of Trusts and one major distinction is whether the Trust is revocable or irrevocable.
Revocable Living Trusts
Sometimes called a “Living Trust,” a Revocable Trusts allows the Trustmaker to be trustee (with the option of appointing a co-trustee or trustees) during his or her lifetime, retaining ownership and control of the assets in the Trust.
The Trustmaker decides on the trustee(s) who will take control of the Trust in the instance the Trustmaker becomes disabled and unable to handle his/her financial decisions during his/her lifetime. Unlike planning centered upon a Will, this maximizes the Trustmaker's disability planning.
The Trustmaker decides the trustee(s) who will take control of the Trust upon his/her death.
Revocable trusts are flexible and can be changed or dissolved by the Trustmaker.
Can help to avoid probate, and the delays, expense, and lack of privacy that is associated with probate.
Assets in an Irrevocable Trust are generally not considered part of your estate for tax purposes, which may help to avoid some estate taxes.
Irrevocable Trusts generally cannot be changed nor dissolved once they are created. Control is essentially given to the trustee of the Trust and the Trustmaker cannot be a trustee of the Trust.
Can help avoid probate.
If maintaining control of assets during your lifetime and during any period of disability, while maximizing privacy is important to you, then a Revocable Living Trust-centered estate plan is generally a superior method to accomplishing your lifetime and post-mortem planning objectives. In addition to the Revocable Living Trust, there may be additional trusts that makes sense, given particulars of your situation, which may include Irrevocable Trusts, Irrevocable Life Insurance Trusts, Charitable Trusts.