Wills and Trusts: The Essentials

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2 Wills and Trusts: The Essentials Your will and/or revocable living trust is the foundation of your estate plan. These documents specify your wishes for managing your estate after your death. Use them to lay out your wishes for how you want your estate to be administered and your assets distributed after your death. Your will also contains provisions for the care of any minor children. For most people, a will is the first choice for passing on an estate to heirs. But it s not the only choice. Among other estate planning tools, the revocable living trust is gaining in popularity. Your will or trust should include these elements, if applicable: Your spouse s name. Your children s names and birth dates. The names of any other people in your care (e.g., an elderly parent) and the nature of those relationships (e.g., legal guardian). The person you wish to implement the provisions of your will after your death (your executor or personal representative) and an alternate in case the first person named is unable to serve. The names of primary and alternate guardians for any minor children. The manner in which your outstanding debts and taxes should be paid. The beneficiaries you wish to receive your assets upon your death, with alternate beneficiaries in case a beneficiary dies before you. Will or Trust: Which Is Right for You? Wills and living trusts both contain inheritance instructions, meaning who gets what, when, and how but revocable living trusts have certain advantages: Maintaining privacy A will is a public document filed with the probate court, and anyone can go to the court and read it. A revocable living trust, on the other hand, is not filed with the probate court, thus protecting the privacy of your family and other beneficiaries. Avoiding probate Placing all your assets in a revocable living trust eliminates the need for your estate to pass through probate court before it can be passed on to your heirs

3 significantly reducing court supervision and hence the time and costs for settling your estate. Providing for incapacity A living trust can provide you with the peace of mind that comes from knowing that your assets and heirs will be protected in the event that you unexpectedly become unable to handle your own financial affairs. Even if you have a revocable living trust, you still need a will, but the will is much simpler. This will is referred to as a pour-over will, because it states that any remaining assets not previously transferred to the living trust are transferred ( poured over ) into the existing trust. Other Types of Trusts Many other kinds of trusts can be useful estate planning tools. Here is a brief description of some of the most common types of trusts: A testamentary trust is established by a provision in your will. It does not exist until you pass away. This type of trust is most often used to leave assets in trust for the benefit of a minor child (or other minor beneficiary) until he or she reaches a certain age, or to protect assets for a beneficiary who might not manage them effectively. In addition, testamentary trusts are used in certain estate plans to minimize or eliminate transfer taxes. Example: Mark and Sheila have one young child, Alice. In their wills, they ve left everything to each other and named Alice as an alternate, in case they die at the same time. However, because Alice is a minor, they need to choose someone to manage Alice s property until she is old enough to do it herself. After considering the options, they decide to include a testamentary trust in their will, naming Mark s sister Jenny as trustee. If Mark and Sheila die, their property will pass into the trust for Alice and be managed for Alice by Jenny. A special needs trust provides for a beneficiary who is disabled and receives a government benefit, such as Supplemental Security Income (SSI). A special needs trust must be irrevocable and can be set up to provide income to the disabled person without adversely affecting SSI benefits or Medicaid eligibility. Example: Donna and Edward have two adult sons. Charlie, born with Down syndrome, has lived with his parents all his life. His younger brother, Jeff, is married with two children. Donna and Edward are concerned about how to provide for Charlie after they are gone without jeopardizing the government benefits he is eligible for as a disabled person. They create a special needs trust to benefit Charlie, with Jeff as the trustee. In this way, the assets of the trust are not held directly by Charlie and are not subject to the limitations imposed by government agencies when calculating benefits due a person with a disability. 2

4 A life insurance trust removes the value of a life insurance policy from your estate to reduce estate taxes. A life insurance trust must be irrevocable, and the trust must be named the owner and beneficiary of a life insurance policy during the policyholder s lifetime. That way, upon the policyholder s death, all death benefits from the policy are excluded from the policyholder s taxable estate for estate tax purposes. Jane Doe is the mother of three minor children. She has a $2 million life insurance policy and personal assets worth another $2 million. Her estate plan is structured so that when Jane passes away, her life insurance company pays the policy to her irrevocable life insurance trust, which is the owner and beneficiary of the policy. According to the terms of her trust, her husband will receive income from the trust for as long has he lives. If he requires additional funds, the trust provisions allow for payout of the principal. When her husband passes away, whatever remains in the trust is payable directly to the children, with no estate tax liability. Creating a Plan for Distributing Your Assets When most people think about a will or trust, they think about leaving gifts to surviving relatives or friends, and to the organizations and causes they supported during their lifetime. Your estate planning documents allow you to specify what and to whom your property will be distributed after your death. You should think about to whom you want to leave gifts ( bequests ). You should also consider what you want to happen if that person dies before you. A specific bequest is a gift of a specific sum of money or item of property. For example, I give my antique desk to my niece, Sarah or I give the sum of $5,000 to my niece, Sarah. A contingent bequest is a gift made on condition that a certain event occurs. This kind of bequest is often used to leave gifts to causes. For example, I give $25,000 to my friend Christina, if she survives me or, if not, to EMILY s List. Another common way of leaving a gift to charity while leaving the majority of assets to loved ones is a residuary bequest. I give the balance of my estate, after all other bequests are satisfied, to EMILY s List. NOTE: The information in this Guide is not intended as legal advice. Please consult a lawyer for legal advice on your particular situation. 3

5 To name EMILY s List a beneficiary of your will or trust, please use this language: To give a specific amount or percentage: I give $ or % to EMILY s List Non-Federal Account, a 527 nonprofit organization with the business address of 1800 M Street, NW, Suite 375N, Washington DC 20036, or its successors. To leave the remainder: After all other gifts, I give the remaining funds of my [estate/life insurance/retirement account] to EMILY s List Non-Federal Account, a 527 nonprofit organization with the business address of 1800 M Street, NW, Suite 375N, Washington, DC 20036, or its successors. We re Here to Help We are happy to help you through the process of considering a gift for EMILY s List. We welcome unrestricted gifts and gifts designated for a specific program. Leaving your gift entirely unrestricted enables EMILY s List to use those resources to address the biggest challenges and opportunities faced at the time your gift is received. To designate your gift for a particular program, please discuss your objectives with our staff. If you have left a gift for EMILY s List, we hope you will let us know. We would like to work with you to create a statement of intent that ensures your wishes are honored when you are no longer here to speak for yourself. We would also like to thank you and welcome you to our Legacy Fund, a group of exceptional individuals who have made EMILY s List a part of their lasting legacy. Kelly Biggs EMILY s List 1800 M Street, NW, Suite 375N, Washington, DC Phone: Fax: For more complimentary estate planning resources, visit Gifts left to EMILY s List Non-Federal Account are not tax deductible. Paid for by EMILY s List, and not authorized by any candidates or candidate s committee. 4