Do I Need a Will or a Trust for Estate Planning in Alabama?
Estate planning in Huntsville, Alabama, can be a little tricky if you aren’t familiar with the proper procedures or documents involved in settling your estate.
One of the primary things that people confuse or misunderstand are wills and trusts. They even more commonly think neither legal document is necessary.
The last thing you want to do is leave your loved ones behind with a giant financial mess, which is why estate planning the right way is so important. That’s why we’re going to discuss the difference between the two documents, why they’re essential, and which one you absolutely need.
Keep reading to learn more.
What Is a Will?
The last will and testament outlines your final wishes for how you want your assets distributed. A will also instructs for how you want your family to be taken care of once you’ve passed away.
When we talk about having a will in an estate plan, we’re talking about a legal document. That means that most of what is put into your will should be carried out. This makes the proceedings much easier for your family or beneficiaries when it comes time to divvy up your estate.
Wills are typically drawn up by first stating that you are of legal age and are writing your will without duress. That means you are of sound health and mind during its drafting and that you are not being forced to name particular beneficiaries or make specific contributions within the will.
This section also usually identifies you as the testator of the will. This is your final will, which may overturn any previously written wills or other documents regarding your estate.
The rest of the will is outlined in detail, determining how your assets will be distributed, who will be assigned the guardian of your children (if they’re minors), and any other important instructions regarding your properties, finances, and burial wishes.
When a will is written, an executor must also be named. The executor is the person who will become responsible for carrying out the will’s intent. This person will also be responsible for overseeing your financial disbursements as well as taking care of any outstanding debts or taxes associated with your estate.
What Is a Trust?
Trusts, unlike wills, only deal with specific assets and their beneficiaries. You can think of a trust as more of a fiduciary arrangement bound by law that allows certain assets to be funneled into each trust you set up.
For example, if you have a certain amount of money you want to leave to your children as an inheritance or other assets or properties, you would designate them in a trust. Once you’re gone, the trust (or trusts) become effective, and your named beneficiaries will receive their property rights.
Trusts can also be set up to make graduated inheritances. For example, you can set up your beneficiary’s trust to become accessible once they turn a certain age, graduate from college, get married, etc.
Trusts also have third parties that manage the assets. They’re called the trustees, and they’ll be responsible for ensuring that everything in your trust is handled according to your wishes and the law.
Aside from setting inheritances, trusts also come with some added benefits that wills just don’t have. For example, when you set up a trust, you receive the following benefits:
Asset privacy
Asset protection
A bypass for probate court
More control over asset distribution
It’s also important to note that trusts are usually written into your will in a testamentary trust.
The other types of trusts you can choose from include:
Living Trusts
A living trust is drafted, distributed, and maintained while you’re still alive. Living trusts can either be drafted as revocable or irrevocable.
Revocable living trusts can be changed as many times as you’d like. The primary purpose of a revocable living trust is to enable your beneficiaries to avoid probate court on their inheritances. However, while you’re still living, it won’t offer 100% asset protection. Any assets included in your revocable living trust may still be accessible by creditors.
Irrevocable living trusts cannot be changed or revoked once the trust has been established. Once you’ve put assets in this type of trust, you surrender your legal rights to them, which is also an excellent way to protect your assets.
Joint Trusts
Joint trusts are established for two people—usually a married couple. While both people are still living, they’ll maintain total control over the assets they’ve included in their joint trust. They can also make changes at any time to add or move assets. After one partner has passed, the surviving partner is usually named the Trustee and is responsible for managing the trust and its assets.
Can I Have One Without the Other?
Technically the answer here is yes and no.
Many people set up living trusts—not testamentary trusts—to ensure that their family receives certain assets at certain times. However, when it comes to your future estate planning, you really can’t have a trust without a will.
The most important thing to remember here is the purpose that a will serves compared to the goal a trust enables. Trusts are only meant to protect and distribute certain assets to specific beneficiaries. Wills are meant to establish a game plan for your entire estate, including all of your possessions, properties, businesses, finances, etc.
Your will is also used to determine who will be the guardian of any minor children you leave behind if you don’t have a spouse. It’ll also determine who will take care of your pets if you have any.
Some even use their last will to turn over their entire estate as a charitable gift in their name.
Lastly, if certain assets you want to add to a trust but don’t make the changes in time, those assets would still have to pass through your will. Therefore, your assets will still end up being distributed appropriately among your named beneficiaries.
So, the takeaway is that while you can have one or the other, a trust cannot replace a will as guidance to your entire estate. Therefore, you may not need a trust, but you absolutely need a will.
What Happens if I Don’t Have Either?
In the state of Alabama, if you don’t have a trust when you pass away, your entire estate will pass through your will. If you don’t have a will, it’s referred to as dying intestate. When you pass away without a will, your assets will have to go through the Alabama intestate succession laws.
The intestate succession laws essentially work by passing your assets onto your closest living relatives, beginning with your spouse, children, parents, and, finally, siblings.
Not having a trust also means that any assets you’ve been keeping out of public records at the time of your death will become a matter of public information. Everything will likely have to pass through probate court—which takes a minimum of six months and usually a maximum of several years.
There will also be no control over how and when your assets are distributed among your beneficiaries.
It’s also important to note that the state of Alabama doesn’t totally follow the Uniform Probate Code (UPC). Therefore, the state’s laws surrounding asset distribution are more complex.
So, no will and no trust means that your assets, children, and pets, become the property of the state and a matter of public information. Meaning that it’s up to the state to oversee the distribution of your assets and the care of your children and pets. This will happen according to the laws of intestate succession.
In Alabama, your assets are distributed among your closest relatives by a specific formula. However, that formula excludes certain factors, including:
Properties that have been transferred to a living trust (if one exists)
Your life insurance proceeds
Your retirement accounts, such as an IRA or 401(k)
Securities being held in a transfer-on-death account
Jointly owned properties or businesses
These assets will automatically be passed over to the surviving “co-owner” of the accounts, such as a spouse, a business partner, or a named beneficiary.
The succession formula works as follows:
If you only have children, then your children will inherit your entire estate
If you only have a spouse, then your spouse inherits your entire estate
Suppose you have a spouse and biological children with them. In that case, your spouse will inherit the first $50,000 of your intestate property and half the balance of the property. Your children will inherit the remaining intestate property
If you have a spouse and children that are not biologically related to that spouse, then the intestate property is split directly in half between them
If you have a spouse and parents, your spouse inherits the first $100,000 of your intestate property and half the balance of the property, and your parents will inherit the remaining intestate property
If you only have surviving parents, then they will inherit 100% of your intestate property
If you only have surviving siblings, then they will inherit 100% of your intestate property
The size of each individual’s share will depend on how many children you have, whether or not you’re married, and so on down the chain of relatives.
It should be noted that for any of your decedents to inherit your intestate property, under Alabama law, they must legally be your children, whether biological or adopted. This also includes grandchildren.
Suppose you don’t have any blood relatives or legal children during the time of your passing. In that case, your entire estate will become “escheat,” which means it all becomes property of the government.
Which One Is Right for Me?
When choosing which type of estate plan is right for you, it really comes down to what you have to leave behind. You may not need trust planning. However, you’ll need a last will and testament, especially if you have a spouse and children.
The good news is that you don’t have to plan your estate alone. Get in touch with us today to speak with Sarah S. Shepard or another experienced Huntsville attorney about preparing your estate for the future.