What would happen to your kids if you weren’t around? It’s a terrifying thought, but there are ways to find peace of mind. You can hope for the best and prepare for the worst by ensuring key decisions for your family’s future are in your power by creating a will or a trust now.
IF YOU DON’T HAVE A WILL YET, YOU’RE NOT ALONE
Most adults in America don’t have plans in place to provide for their families in the event that something happens unexpectedly. In fact, 64% percent of parents in the U.S. with children under the age of 18 have not created a will. While estate planning isn’t a topic at the forefront of many parents’ minds, professionals say it should be.
According to Caring.com, the top reason given for not having a will is, “I haven’t gotten around to it yet.” We get it. As a busy parent, time is in short supply. Like many things in the modern age, technology has enabled simpler, faster, and more affordable solutions than ever before, and the same goes for estate planning. Your biggest hurdle is motivation to begin.
PRIMARY REASONS FOR SETTING UP A WILL
As you become a parent, there are a lot of Adulting decisions and questions that arise. One of the common questions we hear is, “when or why do I need a will?”
- The primary reasons for setting up a will include:
- Establishing guardianship for your minor children
- Direct where your assets go when you die
- Choose your final arrangements (like if you want Cardi B played at your funeral)
A will is a legal document that spells out what should happen to your assets, such as your house, car and savings account. But most importantly for parents, it allows you to appoint a guardian for your minor children.
If you aren’t ready for a complete will, a stand-alone guardianship document can also be used to state your intentions for who should watch your kids if you’re no longer around.
THE RISKS OF NOT HAVING A WILL
“For estate planning, one of the first things people should do is familiarize themselves with what happens to their children when they don’t do it,” says financial expert Stacey Tisdale, CEO of Mind Money Inc., a financial education content provider.
Without a will, a court could decide who will raise your child if you’re a single parent or if both parents die in an accident. While a judge should work with the best interests of the children at heart, the risk is the choice may not be the one you would have made.
In addition, the fate of your property and possessions will be determined by the laws of the state where you live. Without a will, you are not in control of who inherits your estate, and you could be opening up your spouse of family members to a lengthy and costly process of dividing your assets. In practical terms, that’s money that could be spent on caring for the child.
On an emotional level, working through the courts is an added stress for the surviving family members during a heartbreaking time.
HOW DOES A LIVING TRUST DIFFER FROM A WILL?
A trust is a legal financial arrangement that can help protect and manage the money that loved ones inherit from you. For instance, you could set up a trust that would allocate funds to your children when they turn 18, or 25. A trust can also help your family receive your assets more quickly by avoiding a legal process called probate, which is handled by state courts. Probate lawyers’ fees can amount to around 4% of the estate value, so by setting up a trust, your family can avoid those costs.
Most importantly, a trust avoids probate court and fees for your assets (especially your large assets), along with keeping all of your assets private and out of the public record.
KEY DIFFERENCES BETWEEN A WILL AND A LIVING TRUST
- Now that you understand what a will and a living trust are, how are they actually different?
- Wills are effective after death whereas living trusts are effective almost immediately
- Living trusts require a trustee; wills nominate an executor
- Wills can be subject to probate (the court deciding the final destination of assets), the assets in a trust are not
- Wills pertain to your entire estate while a trust is asset-specific
- Trusts are generally more expensive to set up in the beginning, but wills going through probate can often cost more after death
- To be most effective, wills are often times paired with a trust
HOW DO YOU CHOOSE BETWEEN A WILL AND A TRUST?
“A good rule of thumb for choosing between a will or a trust is to think about your assets,” says Daniel Goldstein, founder of Trust & Will, “If you own a home, or have more than $200k in asset value, a trust is most-often used to keep those assets out of probate, and to set your family up for success. If your assets are less than $200k, you could use a trust, but a will is generally a great choice.”
Considering wills and trusts both decide the direction your assets go after you pass away, the level of protection is oftentimes connected to the level of assets or amount you’d like to control those assets post-death.
Everybody needs a will, and if you have the assets to protect, it’s wise to think about also setting up a trust.
“When you think about things like estate planning, or even retirement planning, saving money for something that doesn’t affect you now doesn’t quite register,” says financial expert Tisdale.
While the concept of preparing a will or a trust may feel more abstract than properly gating your stairs or taking an infant CPR class, it’s a similar preparedness task to do without delay as a safeguard for your child.
EXCLUSIVE FOR OUR MEMBERS: Our partner Trust & Will is giving away a free Guardianship document when you complete our Preparing Home for Baby class. In addition, if you upgrade to a Will or a Trust, our members get 50% off. That means you can create a Will for just $35. And, their simple process takes just 10 minutes.
Photo by SJ Yost