Wills or Trusts?

by Flanders Law Firm LLC on May 6, 2011

When considering whether you need a will or a trust for your family, there are certain facts that you should consider.

One important consideration as to whether a will or trust is appropriate is what you would like to happen to your estate upon your death.  For instance, do you want to draft a simple will which provides for the organized distribution of your property to your chosen beneficiaries?  Or, would you like to create a trust that will continue to exist after your death and act as a continous, guiding force for your chosen beneficiaries?

When making this decision, the first important thing to consider is often the size of your estate and what tax burdens you want your estate to take on after your death.  Most states in the United States have some form of estate tax or “death tax”.  At a certain wealth level, this can also be true for the federal government.  So, you need to consider what the laws are in both your state and whether the federal laws apply to your estate.

Let’s consider an average, middle-class, American husband and wife.  As a hypothetical, lets say that the couple dies with under one million dollars in total assets.  Under the current federal law (effective as of May, 2011) there would be no federal estate tax for this couple’s estate.  Also, I am a assuming that both the husband and the wife are now deceased.  The next thing to check is the couple’s tax rate pursuant to state law.  The estate tax varies from state to state, and your attorney and/or financial advisor must be consulted when considering this aspect of estate planning.  For my example, I am going to assume that there will be no estate tax in this imaginary couple’s state.

So, under this hypothetical, we now know that the couple will not have a federal or state tax on their estate which has an estimated value of under one million dollars.  The next decision is whether to create a trust and name a trustee to watch over and/or distribute the couple’s assets upon death or, should the couple create a will and have their chosen executor or personal representative distribute their estate to their chosen beneficiaries.  If a will is created, the estate will likely need to be probated in the state where the couple lived as permanent residents.  Probating a will is a much discussed subject and I won’t get into the positives or negatives of that subject.  However, many people (including our imaginary couple) choose to have a Minnesota estate planning attorney draft a trust instead of utilizing a simple will so that the couple can avoid probate.

Stay tuned to this blog about the value of a trust and whether the imaginary couple should try and avoid probate.

Please visit flanderslawfirm.com for more information on estate planning and wills and trusts.

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