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 fits your situation.
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 mind when you sign it 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 usually revokes any wills you signed before.
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.
A will should name an executor (personal representative). If it doesn’t, the court will appoint someone in the order Alabama law sets. 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, your trustee carries out the trust’s terms for your named beneficiaries.
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
Protection for vulnerable beneficiaries
A bypass for probate court
More control over asset distribution
It’s also important to note that a trust written into your will, called a testamentary trust, goes through probate before it takes effect.
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, a revocable living trust does not protect your assets from your creditors, during your life or after.
Irrevocable living trusts are designed to be permanent, but Alabama law allows changes in defined situations, usually with the beneficiaries’ consent or court approval. Once you’ve put assets in this type of trust, you give up your rights to them.
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, even with a living trust, you still want a short pour-over will to catch anything left outside the trust.
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 everything in your name that does not pass by beneficiary designation, survivorship title, or trust, including your possessions, properties, businesses, and finances.
Your will is also used to determine who will be the guardian of any minor children you leave behind if their other parent does not survive you. 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 you mean to add certain assets to a trust but don’t transfer them 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. You may not need a trust, but almost everyone should have 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, property in your sole name without a named beneficiary 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 and descendants, then your parents, then your siblings and their descendants, and then your grandparents and their descendants.
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. Property in your sole name will likely have to pass through probate court. In Alabama, a full estate administration cannot close sooner than six months after the court appoints the personal representative, because creditors have that long to file claims. Many estates take longer, depending on the assets, debts, taxes, and whether anyone disputes the will.
There will also be no control over how and when your assets are distributed among your beneficiaries.
Alabama adopted parts of the Uniform Probate Code (UPC), including its inheritance rules, but kept its own procedures for administering estates.
If you die without a will, Alabama’s inheritance laws decide who receives your property, usually your spouse and children, and a court-appointed administrator handles the estate. Your children’s other parent generally keeps custody, and if neither parent survives, the probate court appoints a guardian. Probate filings are also public records.
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 property with a right of survivorship written into the title
These assets will automatically be passed over to the surviving “co-owner” of the accounts, such as a spouse 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 (no descendants and no living parents), then your spouse inherits your entire estate
If you leave a spouse and descendants who are all also your spouse’s descendants (including children you adopted together), your spouse receives the first $50,000 plus half of the rest, and your descendants share the remainder
If any of your descendants are not also your spouse’s (for example, children from an earlier relationship whom your spouse did not adopt), your spouse takes half, and your descendants share the other half
If you have a spouse and parents but no descendants, 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 leave no spouse, descendants, or parents, your brothers and sisters (including half-siblings) inherit, with a deceased sibling’s children taking that sibling’s share
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 under Alabama law, your adopted children inherit just as your biological children do, and grandchildren generally inherit only in place of a parent who has died.
Alabama’s inheritance laws reach relatives as distant as grandparents and their descendants, such as aunts, uncles, and cousins. If you leave no spouse and none of those relatives, your estate passes to the State of Alabama.
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 should have 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 to schedule a consultation with Sarah S. Shepard, who can help you decide whether a will alone is enough or whether a trust belongs in your plan.