Welcome to LEGACY LESSON, where our team dives into the most common estate planning challenges. Each episode features a fictional scenario, inspired by real-world issues, to illustrate how to navigate the complexities of tax, trusts, and estates. Today, we introduce you to Margaret, a widow in her late 60s with a sizable estate. Margaret’s primary concern is ensuring her assets are distributed efficiently to her three adult children and a charity close to her heart.
The Dilemma: Will vs. Trust
After her passing, Margaret wants to know the best way to distribute her assets. She is exploring the difference between setting up a trust versus a will. It’s important to note that these two are not mutually exclusive; having both a will and a trust can provide comprehensive estate planning.
Why Both a Will and a Trust?
- Will: A will is essential as it dictates how your assets will be distributed after your death. If you die without a will (intestate), state laws will determine asset distribution, which may not align with your wishes. For instance, if Margaret intends to leave assets to charity, dying intestate could thwart her charitable intentions.
- Trust: A trust allows for the transfer of assets during your lifetime, which can streamline the process and potentially offer tax benefits. By placing assets into a trust, Margaret can ensure that her estate is managed and distributed according to her wishes, both during her lifetime and after her passing.
The Importance of Complementary Estate Planning
Having a will and a trust that complement each other is the best approach for Margaret. This ensures lifetime gifting through the trust and proper distribution of the remaining estate via the will. This strategy prevents state laws from overriding her intentions, particularly for charitable donations.
Interstate Estate Management
What happens if Margaret passes away in a different state, say Florida, while her assets are in New York or New Jersey? Her will would still control the distribution of her assets, but her estate might face ancillary probate or administration in the states where the property is located. To avoid such complications, transferring real property into a trust during her lifetime can convert those assets into non-probate assets, thus avoiding probate issues.
The Probate Process
Probate is the process of registering a will with the surrogate’s court to begin estate administration. The complexity and cost of probate vary by state. In New Jersey, probate is relatively inexpensive and straightforward. However, in states like Florida, it can be more complicated and costly. While avoiding probate might not always be necessary in New Jersey, it can be beneficial to eliminate delays in accessing assets needed to pay debts or taxes.
Estate planning is a nuanced process that benefits from a comprehensive approach, to start or solidify your estate planning process you can contact Jason Marx at marx@mblawfirm.com or call 973-607-1271