A couple discusses a written will, illustrating an introduction to the basics of wills and living trusts.

Wills and Living Trusts: The Basics

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Preparing for the distribution of your estate (assets you own at the time of your death) can be a very stressful experience. After all, with so many important decisions to make, no one wants to make the wrong one. One of the most common dilemmas is whether to have a will or a living trust – or both. Knowing the fundamentals of each will help you make the right decision. 

 

Begin with understanding probate, as it plays a significant role in estate planning. Probate is the administrative and court process that takes place after you die. It includes proving the validity of a will (if there is one), identifying, inventorying, and appraising property, paying debts and taxes, and (finally), distributing whatever assets remain. 

 

Because probate can drag on for months or even years, much of the wealth you’ve accumulated over your lifetime can be eroded. Wills and trusts have the power to reduce probate dramatically, so that your heirs can efficiently inherit what you want them to receive. 

Wills 

A will is nothing more than a set of instructions that specifies who gets what of your assets. If you have property and loved ones, having a will is vital. If you die without one, state law takes over and makes distribution decisions on your behalf. In most cases everything goes to your spouse and/or children. If you have neither, your closest relatives will be the recipients, and if you have no relatives, your entire estate will be absorbed by the state. While the court may make the same decisions you would have, in many cases it does not. 

 

One of the most compelling reasons to draw up a will is if you have children who depend on you for care. A will allows you to stipulate guardianship. Without one, the court will make this very personal choice for you. 

 

If your estate is relatively simple, you may choose to create your own will with the help of a quality software program or guidebook. For more complex situations – or if you don’t feel comfortable writing your own will – hire an attorney or legal service to do it for you. Because this is such an essential document, you’ll want to be sure it’s done right. Consider investing in a lawyer to at least look over your finished product. 

Living trusts 

A living trust is a bit more complicated in concept than a will, but in essence it’s a separate legal entity that holds title or ownership to your property and assets. While you’re alive, and acting as the trustee, you hold full control over all the property held in the trust. 

 

The primary reason to create a living trust is to avoid probate. Property held in a trust won’t have to go through probate before your loved ones receive their inheritance. Where wills are public, trusts are private, and usually harder to contest. 

 

As with a will, you can create your own living trust by using software and guidebooks developed for “do-it-yourselfers.” However, living trusts by nature are often more involved than wills, so having a lawyer draw it up for you in the first place may be the better way to go. 

 

Not everyone needs a living trust though. Before spending the money to create one, be aware that they can be costly to arrange, are time-consuming to put together, and require considerable ongoing maintenance (adding to the cost). Changes to a trust can take a long time, and moving certain assets such as real estate, savings, and brokerage accounts into the trust requires re-titling, which can be cumbersome. 

A will plus a trust 

Wills and living trusts are not mutually exclusive estate planning devices. In fact, if you have a trust, you should probably have a will to make sure all your assets will be distributed according to your wishes. Most trusts do not provide instructions for everything in your estate. A will acts as a backup for what’s not included in the trust, as it would have a clause naming a person you want to receive all leftover property. Without a will, anything you didn’t transfer into the trust will go through that long and expensive probate process. Once again, those assets will be distributed according to state law – and most likely not the way you would choose to have your property dispersed. 

 

While estate planning certainly can be an anxiety-provoking process, knowing the fundamentals of wills and living trusts should ease some discomfort. 

 

This article is for informational purposes only and is not intended to provide tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for advice. Membership required. SRP is federally insured by NCUA. 

Article Credit: BALANCE

 

Three stacks of coins of increasing height, topped with a bit of soil and small plant sprouts growing from them, to represent building wealth.

Daily Habits That Make Building Wealth Easier

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It is easy to think of wealth as something that happens overnight. The media often emphasizes rags to riches stories, forgetting how rare those scenarios are. News sites share stories of happy lottery winners, reports that overlook the enormous odds ticket buyers face.

 

Given these misperceptions, it is easy to see why so many people haven’t taken the steps that could help them achieve their financial goals. Goals that may seem unattainable. With discipline and hard work, building wealth is possible. Here are a few strategies and everyday habits that can make wealth building easier.

Pay yourself first

Pay yourself first, or “PYF,” is perhaps the most effective wealth-building habit and one of the easiest to implement. With this simple strategy, you direct part of every paycheck to a savings account, mutual fund, or other investment vehicle, forcing yourself to live on less than you make.

Know how much is in your accounts

There is a reason why financial institutions make so much money on overdraft fees. A shocking number of account holders have no idea how much money is in their account. As a result, they are blindsided when writing a check or withdrawing cash from an ATM sends their balances negative. Knowing how much is in the account is an essential first step toward controlling unexpected costs and taking control of your finances.

Prioritize fee reduction and demand real value for your money

Those who manage to build wealth know that prioritizing fee reduction is a vital first step and that every dollar not spent on management costs is one more dollar that can be invested. The wealthy, and those on their way, always demand value for the money they spend on their investments.

Deposit (or invest) raises, bonuses, and other found money

If you want to build wealth, start by putting bonuses and other found money in a savings account or investing the cash in a mutual fund or other low-cost investment. When wealth builders get extra money, they avoid lifestyle inflation, opting instead to beef up their savings and investment accounts.

Take advantage of tax savings

From 401(k) contributions to IRA accounts to health savings accounts, some types of investments have a double and even triple advantage. One of the most effective ways to build wealth is to prioritize investments that offer tax savings and the promise of tax-free withdrawals. Consult a tax advisor to determine the best strategies for your situation.

Develop multiple streams of income

One of the fastest ways to build wealth is to bring in extra money, which starts with developing multiple income streams. That could be a side hustle, a home-based business, or even rental real estate. The idea is to generate extra cash, money that can be saved and invested.

Save on everyday purchases

People who are successful at building wealth look for ways to save money on everyday purchases. These people choose generic and store-brand products when they go grocery shopping. You might even see them scanning the racks of the local thrift store for gently worn designer duds and used but still pristine furniture and home décor.

Take the long view

Building wealth will be a slow and steady process unless you are the one in several million who buys that winning lottery ticket. If you want to succeed, it pays to adopt the long view, saving consistently, taking calculated risks, and tracking your progress over time.

Conduct an annual financial review

Successful wealth builders know where they stand and where they are going. So they conduct annual reviews of their finances, including emergency savings, investments, insurance, and all other expenses.

 

Building wealth is not an easy process; in many cases, it is not fast either. If you want to build wealth for the long term, start today, and adopt these smart habits that can help you succeed. The strategies listed above can help you get started, one dollar, and one day, at a time.

 

This article is for informational purposes only and is not intended to provide tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for advice. Membership required. SRP is federally insured by NCUA.

Article Credit: BALANCE