According to recent research by Caring.com, even though the majority of Americans understand the importance of estate-planning documents like a will or a trust, less than one-third currently have one in place.
As an active duty servicemember or veteran of the armed forces, the best way to protect your loved ones if anything happens to you in the future is to prepare for it now. Because military families have unique needs and benefits, a will alone may not offer the level of protection, privacy and planning you need. Depending on your situation, establishing a trust might be a good option for you and your family. But how do you know what will be the best fit for you?
To better help you determine the best way to ensure your legacy, here’s a basic breakdown of the differences between a will and a trust, including what’s covered by each. It’s important to talk with your AAFMAA Wealth Management & Trust (AWM&T) Relationship Manager, who can help you think about the right strategy and discuss your individual circumstances.
A will is a legally enforceable document, which among other things, allows you to name someone (an executor) to collect and distribute your assets to your beneficiaries (the person you want to receive the assets) in the event of your death. Without a will, you will die “intestate,” which means your assets will be distributed according to state law, which may or may not reflect your intent. A will is also the document used to name a guardian for your minor children after your death and to specify funeral arrangements.
Upon your death, your will must be filed with a probate court to ensure it is valid and that your property gets distributed as you have instructed. Probate administration can be both time consuming and expensive and is also public record. Because military members often hold property in multiple states, their estate may be subject to multiple probate proceedings.
A will in itself does not allow for assets to be distributed to beneficiaries over a period of time, which can be an important consideration depending on the beneficiary. For example, an 18-year-old who inherits a $250,000 lump sum may make different financial choices than a 35-year-old who receives the same amount of money.
A trust is also a legally enforceable document, allowing you to distribute your assets to beneficiaries. Though there are many types of trusts, a revocable living trust is most commonly used in combination with a will as part of your estate plan.
A revocable living trust is created during your lifetime, and you -- as trustor and trustee -- have full control over your assets. You designate the beneficiaries of your trust, and a successor trustee to manage those assets if you are no longer capable of doing so. The successor trustee can be an individual or a corporate trustee like AWM&T.
Choosing a successor trustee is one of the most important decisions you will face, and it’s important to consider multiple factors when making your decision. A family member or close friend may not have the required expertise. Also, depending on the dynamic, conflicts may develop between beneficiaries when one successor trustee is designated over another.
When you work with a corporate trustee, you get impartial expertise with no risk of failing to act due to illness, age or personal issues. As fiduciaries, they are held to a higher standard, and have the necessary expertise, capacity, and liability protection to administer the trust according to all applicable laws.
A trust is administered outside of probate court, which can save time and money. Unlike wills, trusts don’t become part of the public record and remain private.
Rather than beneficiaries inheriting assets at one time as they would under a will, a trustor can direct trust assets to be distributed over time. This can help protect trust assets from reckless spending by a beneficiary. For example, a beneficiary of a $250,000 inheritance can receive one third at age 21, a third at age 25, and a third at age 30.
Holding assets in trust can also safeguard those assets against a beneficiary’s creditors or in the case of a divorce settlement. A special needs trust can also specifically provide for a physically or mentally disabled beneficiary.
The Bottom Line
Establishing a living trust can offer a level of protection, privacy and planning you can’t get from a will alone. Because managing a living trust can be complex, it’s important to choose the right trustee. AAFMAA Wealth Management & Trust is here to help. Connect with us today!