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Marc A. Hebert's Money Sense: Wills and trusts can both play important role in estate planning


PERHAPS YOU have been thinking about your estate planning. You have worked hard and accumulated some assets. It is only natural that you would want to have a say in what happens to them once you die. One question that might come up is whether you need a will or a trust, or perhaps both. What's the difference?

A will is a legal document that allows you to direct how your property will be given to your heirs when you die. It goes through the probate court system, which is designed to wrap up your affairs after your debts are paid. An executor is named in the will as the person responsible for carrying out your wishes.

A trust is a legal document that establishes relationships. The first is the grantor. The grantor is the person who creates the trust and decides what assets to include, who will be the trustee or trustees and who will be the beneficiaries. Next is the trustee, who manages the property in the trust, distributes assets according to the trust's provisions and essentially safeguards the assets for another, known as the beneficiary.

The grantor can be the trustee. If it is you, you also will want to name a successor trustee just in case you can't function in this capacity. The beneficiary could be you during your lifetime and your spouse/child or anyone else at your death. There can be as many beneficiaries as you would like.

The trust also dictates when and how the assets are to be distributed to the beneficiaries. For example, you might want to stagger the ages in which a beneficiary can ultimately have access to a trust's assets.

If you create the trust while you are alive, it is called a living trust. These are usually revocable during your life, meaning you can make any changes to the document you want as time goes on. In order for the trust to function properly, you will need to transfer title or "ownership" of assets to the trust. For example, your brokerage account would be transferred into a trust account. IRAs and 401(k)s can name the trust as the beneficiary.

Both documents - will and trust - let you direct the distribution of your assets to your beneficiaries. Here are some key differences:

. A will requires the public process of probate. Trusts are usually private.

. You must transfer assets to your trust in order for it to work while you are alive. With a will, there isn't this step.

. A trust can manage assets while you are incapacitated. A will works only at your death.

. If you own property in more than one state, by placing all property in a trust, you might be able to avoid probate in each state.

In a will, you can name a guardian of your minor children or dependents. Trusts cannot do this.

Having a will or trust isn't an either or situation. In some instances, it is appropriate to have both. You might need a will to name the guardian for your child. A will also may be used to transfer to the trust those straggler accounts that somehow didn't get transferred into the trust during your life. Bare minimum, having a will also avoids the state dictating how your assets will pass to your heirs.

Most everyone needs a will. Having a trust as part of your estate plan might be a good strategy as well. Sorting through the details with an estate planning attorney will help you decide just what fits your needs.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at mhebert@harborgroup.com. Your question and his response might appear in a future column.


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