Regardless of your net worth, estate planning is a process that ensures that your assets are handed down the way you wish after you pass away, says Forbes’ recent article entitled, “Estate Planning Basics.”
The most common asset transfer documents are wills and trusts, which help you name your wishes regarding:
Wills. This is a document that states who gets your assets when you die. A will names a legal representative—your executor—responsible for directing your assets to the recipients you’ve named. A will includes provisions for assets with specific beneficiaries. Wills must go through probate, a legal process where the court officially permits your named executor to start distributing your assets according to the will.
Trusts. The probate process in some states can be arduous. That’s why many people create trusts. These legal “containers” hold your assets on behalf of your beneficiaries. Trusts are estate planning tools that help you to avoid the probate process. A trust allows a trustee you appoint to distribute your assets according to the trust’s provisions. The two most common types of trusts in estate planning are revocable and irrevocable living trusts.
Revocable living trust. This trust allows your assets to be transferred outside of probate. While you’re alive, the trust assets stay in your control. You can even serve as the trustee and make changes as you’d like, and when you pass away, a trustee you name will take over and distribute your assets.
Irrevocable living trust. To avoid estate taxes, consider an irrevocable living trust. This type of trust removes assets from your control and transfers control to a trustee (even during your lifetime). Because the assets are legally removed from your estate and placed into the trust, they can help reduce estate taxes.
Reference: Forbes (November 16, 2022) “Estate Planning Basics”