Understanding Estate Planning

After working for years to accumulate financial resources and build an estate, you want to care for those assets and ensure that they help you meet the life goals you had in mind all along.

The word “estate” may make you think of mansions, land, or yachts, but an estate
is simply the value of everything you own minus anything you owe like taxes or
unpaid debt.

Wills and Trusts

Wills and trusts are created to distribute an estate after death or in some cases, before. Trusts are different than wills and are not meant to replace a will. Most trusts deal with specific assets or property, and there are generally two types: private and charitable. Private trusts benefit people named as beneficiaries, while charitable trusts provide benefits to organizations supporting philanthropic causes.

Trusts can make it easier to transfer wealth to your heirs. Wills must be validated by a probate court – a process that can be expensive and time-consuming. Trusts aren’t subject to probate, so you can maintain a greater degree of privacy, reduce settlement costs, and possibly decrease estate taxes.

The more flexibility a trust has, the fewer the tax benefits. Revocable trusts can be changed or even canceled, but they don’t reduce the income tax you owe on appreciating assets while you’re alive, and they don’t reduce possible estate or inheritance taxes after you die. Irrevocable trusts, on the other hand, provide significant tax savings because all control over property put into the trust is surrendered when the trust is created so increases in value aren’t considered part of your estate. However, property or beneficiaries can’t be changed except in certain very limited circumstances. The table below summarizes the differences:

  Revocable Trust Irrevocable Trust
Eliminates probate
Protects assets
Permits transfer of property without a gift tax*
Permits changes after the trust is established  
Trustor maintains ownership and control over property held in the trust  
Trustor is responsible for paying taxes  
Subject to estate tax  
Trust is responsible for paying taxes  
Eliminates estate tax  
Defers/reduces capital gain tax  

* Subject to gift tax limits and current tax law.

Take Action

  • Talk with a trusted attorney or financial advisor about wills and trusts
  • Create an estate plan that establishes your priorities.
  • Use the resources to the right to guide your thinking and begin your search for answers.