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Wills & Trusts FAQ

Law Offices of Yu & Associates

1. 1. What is the difference between a will and a trust?

A will is a document that determines who will receive the deceased individualí»s property at his or her death. A trust is a document that distributes the assets before or after death. In the structure of the trust, the grantor sets up the trust and has the trustee hold the legal title to the properties for the beneficiary.

2. Who can be included in a will?

Spouses, children, and family members are typically the ones who are included in a will. Relatives and/or close friends can be included as well. A will can also allow people to leave the assets to the charities of their choice.

3. What are the main purposes of trusts?

A trust can protect assets and direct them to the desired beneficiaries in the present and in the future. Since a trust is a legal entity created to hold the properties, the properties are generally safer than they would be in the hands of a family member who may face a divorce, lawsuit, or other misfortune, putting those properties at risk. A trust may also serve as a good tool in ensuring care for mentally or physically disabled dependents. Furthermore, elderly people may want to create a trust to qualify for Medicaid benefits and still keep some of their wealth.

A trust can also be used for privacy purposes, as wills have to go through probate proceedings and may become public records. Most importantly, trusts can be set up for estate planning purposes, especially when children under age 18 are the beneficiary(ies) and may need a trustee controlling the properties until the children grow up. Trusts can also be used for tax planning to achieve lower tax consequences under certain circumstances.

4. What are the advantages and disadvantages of a trust?

The advantages of certain trusts may include being able to avoid taxes and probate, protecting assets from creditors, and providing clear terms of distribution of the assets that the beneficiaries will receive. Disadvantages of trusts include the loss of control over assets if the properties are put into irrevocable trusts. Also, irrevocable trusts cannot be easily nullified or cancelled.

5. What is the procedure to create a trust?

The first step of setting up a trust is to have an experienced attorney analyze your needs and draft the trust document. The trust agreement should include who will be the beneficiary(ies), how the assets will be distributed, who will be the trustee and so on. The next step involves funding the trust, which means that the assets need to be transferred to the trust.

6. Is it possible to have both a will and a trust?

It is definitely possible to have both, because wills and trusts ultimately accomplish different goals. Trusts are used to manage and distribute assets during the lifetime and after the death of an individual, while wills are used to name guardians for the children, appoint the executor for the estate, and set forth final wishes.

7. Is it better to have a will or a trust?

Neither one is necessarily better than the other. Wills and trusts are two different things and have different purposes. It really depends on the situation and the ultimate goals that you want to accomplish.

8. What is the probate process?

Probate is the process where a probate court validates a will and approves the chosen executor of the will. This process is a court supervised proceeding. During the process, all of the deceased individualí»s properties are reported and located, and the values of the assets are assessed and determined. After taxes and the debts of the deceased are paid, the remaining assets will be distributed to the beneficiaries.

9. When do wills and trusts go into effect?

Wills and trusts go into effect at different times. A will goes into effect when it is signed by the person who created the will and is witnessed with certain formalities. A trust will not go into effect until the grantor transfers the property to the trust.

10. What happens if you die without a will?

If a person dies without a will, it means they have died "intestate" and the intestate laws of the state of residence of the deceased person will determine how their assets are distributed. The distribution under the intestate law depends heavily on whether the deceased person was married or not and whether the person had children and other family members.

11. Do wills and trusts need to be updated?

Wills and trusts do not necessarily need to be updated, but they can be modified whenever the creator feels it is necessary to do so. There are several reasons for updating wills and trusts, for example, change in marital status, the birth of children, and familial changes such as the death of the beneficiary or executor. Trusts can be reviewed and updated if needed every three to five years.

12. Do I need to hire an attorney in order to create a will or trust?

The answer for most people is yes, you do need an attorney, because most people do not have experience in the estate planning area and do not know the correct steps, rules, and procedures. If you are interested in protecting your wealth and avoiding risks in directing asset distribution, you should hire an experienced attorney to help. Especially when your estate amount would exceed the estate tax exemption; you have children with disabilities; or you need to set up complicated conditions on how your beneficiaries can receive the assets, you need to consider speaking with an attorney in this field to help formulate a suitable estate planning structure to meet your needs.

The above is a general introduction, and should not be construed as individual legal advice. For specific legal questions, please contact the Law Offices of Yu & Associates. Tel: 301-838-8986, Fax: 202-595-1918; E-mail: syu@yulegal.com, Address: 110 N. Washington St., Suite 328E, Rockville, MD 20850. (All rights reserved.)

Ó Yu & Associates LLC, 110 North Washington Street, Suite 328E, Rockville, MD 20850, USA. Tel: 301-838-8986