The Basic Elements of an Estate Plan

On Behalf of | Jun 30, 2018 | Firm News |

It comes as no surprise that many people do not understand the basic roles and duties involved in a standard estate plan, as many people have never served in roles such as a “settlor” or “trustee” before meeting with an estate planning attorney. Without an understanding of the basic elements of an estate plan, many people are hesitant to establish one for them self. This article serves to summarize the basic elements of an estate plan so that the idea of setting up a Trust or Will is less daunting.

Trusts Generally. A Trust creates a fiduciary relationship whereby a Trustee holds legal title to certain property for the benefit of the beneficiaries. Trusts are most commonly used to direct how and when your assets will be distributed after you die, reduce estate and gift taxes, asset protection, and to avoid probate administration.

Parties to a Trust. The Settlor, the Beneficiary, and the Trustee are the main parties to a Trust. The Settlor, also often referred to as the “Trustor”, is the person who creates a Trust. The Trustee holds legal title to the Trust property and is under a duty to administer the Trust solely in the interest of the beneficiaries. The beneficiaries hold equitable interests. Typically, Trust income is payable to a beneficiary or a class of beneficiaries for life, with the Trustee to distribute the Trust corpus to another class of beneficiaries upon termination of the Trust.

Living (Inter Vivos) vs. Testamentary. A Living Trust is one that is established by a settlor during the settlor’s lifetime. A Living Trust can be irrevocable or revocable. The vast majority of living trusts are revocable and the term “living trust” has become synonymous with “revocable living trusts.” On the other hand, a Testamentary Trust is a trust established under the terms of a Will.

Revocable vs. Irrevocable. Revocable trusts are completely revocable and amendable by the settlor of the trust. Irrevocable trusts technically cannot be amended or modified after they are initially established.

Wills Generally. Like a Trust, a Will is a testamentary instrument in which a person may dispose of their property at their death; however, a Will is subject to probate administration. When coupled with a Trust, many people have what is called a “pour over” Will. A pour over Will serves to capture assets that were inadvertently left out of the Trust and directs the assets into the Trust. A Will does not take effect until the Testator dies.

Parties to a Will. The Testator, the Executor, and the Beneficiary are the main parties to a Will. The Testator is the person that creates the Will. The Executor has many duties, but is chiefly recognized as the person nominated to carry out the Testator’s intent, manage the estate’s assets including paying the debts of the estate, and distributing the assets to the beneficiaries. A Beneficiary is named in the Will to receive the inheritance from the Testator. In the event the Testator has minor children, the Testator may nominate a Guardian of their minor child to act when there is no other living parent of the child. The Guardian’s role is to provide the Testator’s minor child with shelter and care, and to manage the child’s assets until they reach adulthood. Because Wills are subject to probate administration, carrying out the terms of the Will is done entirely under the Court’s supervision.

The basic elements of a Trust and Will are merely that- the basics. Wills and Trusts are estate planning tools that can be utilized in many different ways to suit your family’s needs and long term objectives. By discussing your goals with an estate planning attorney, you may discover the benefits that a personally designed estate plan can provide your family.

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