Another reason a will may not be enough on its own is that many assets can pass outside of the will.
At Duncan Legal, PC, we help families understand how wills, beneficiary designations, and trusts can work together as part of a coordinated estate plan.
Life insurance policies, annuities, retirement accounts such as IRAs and 401(k)s, payable-on-death or transfer-on-death accounts, and certain jointly owned property may pass directly to a named beneficiary or surviving owner. In those situations, the applicable beneficiary designation or ownership arrangement generally determines who receives the asset rather than the terms of the will.
For retirement accounts, the account owner designates beneficiaries according to the procedures established by the IRA custodian or retirement plan. Those beneficiary designations can have significant estate planning and tax consequences, particularly because inherited retirement accounts are subject to specific federal distribution rules.
This is one reason beneficiary designations should be reviewed periodically and coordinated with the rest of an estate plan. A beneficiary designation completed many years ago may no longer reflect your wishes following a marriage, divorce, birth, death, or other significant change in your family or financial circumstances.
The Role of Trusts in an Estate Plan
Many families also use trusts as part of their estate planning.
A revocable living trust can provide flexibility in managing assets during your lifetime and directing how those assets are administered and distributed after your death. It may also provide a way for a successor trustee to manage assets held in the trust if you become incapacitated.
Assets properly titled in a revocable living trust generally do not have to pass through probate when the person who created the trust dies. However, creating a trust by itself does not automatically avoid probate. Assets that were never transferred to the trust and do not otherwise pass outside probate may still require probate administration.
A revocable living trust also should not be viewed as automatic creditor protection. Because the person creating a typical revocable trust generally retains control over the trust assets during life, those assets ordinarily remain available to that person’s creditors under applicable law.
Different considerations can apply to assets held in trust for beneficiaries after the person creating the trust dies. Depending on the terms of the trust and applicable state law, keeping an inheritance in trust rather than distributing it outright may provide a degree of protection from a beneficiary’s creditors or poor financial decisions. The level of protection depends on the type of trust, its terms, and the law that applies.
Trusts may also be useful when a beneficiary is young, has difficulty managing money, has special circumstances, or when the person creating the estate plan wants to control how and when an inheritance is distributed.
Bringing the Pieces of Your Estate Plan Together
The bottom line is that a will remains an important estate planning document, but it is rarely the only consideration.
A comprehensive estate plan may include a will, powers of attorney, health care directives, beneficiary designations, trusts, and other planning strategies depending on your assets, family circumstances, and goals.
Just as important, these documents and beneficiary arrangements should work together. Periodically reviewing your estate plan can help identify outdated beneficiary designations, assets that have not been properly coordinated with a trust, and other changes that may affect how your wishes are carried out.
Make Sure Your Estate Plan Works Together
Having the right estate planning documents is important, but making sure they work together is just as essential. At Duncan Legal, PC, we help clients review and coordinate wills, trusts, beneficiary designations, and other estate planning documents to better protect their wishes and their loved ones.
Is your estate plan properly coordinated and up to date? Contact Duncan Legal, PC at (303) 394-2358 or visit www.duncanlegal.com to schedule a consultation. You can also visit our office at 6436 S Racine Circle, Suite 227, Centennial, CO 80111.
