What happens to your assets after you die depends a great deal on how you prepared during your life. If you do nothing, state law will determine what happens to your assets. However, certain estate planning documents, such as a will or a trust, allow you to plan for what happens to your assets.
Wills are the most common tool for distributing assets after someone’s death. A will specifies:
When you have a will, an executor, personal representative, or administrator files it with the court upon your death and has it proved valid. Your property and assets are then inventoried and appraised. Any debts are paid, and the remaining assets are distributed to designated beneficiaries. This entire court supervised process is known as probate.
In the absence of a will, the disbursement of assets that are titled in your name individually is handled according to the laws of the state in which you reside. (In other words, you forfeit control of the distribution of your assets after you die.)
Assets held jointly by you and someone else pass to the joint owner when you die. However, if the surviving owner does not have a will, these assets can once again be handled by the state upon their death. This means it’s important that both you and your loved ones have wills that are updated periodically.
Despite the importance of having a will, most people do not have one in place. According to a recent survey, only 1 out of 3 American adults do.1 But even for those who do have a will, it might not be enough to ensure that their assets are distributed according to their desires and values.
Because your will must be validated in court, it can turn your wishes into a matter of public record. To avoid probate, you might also consider setting up a trust. This can ensure that your assets are distributed to beneficiaries more quickly, as well as keep your personal financial information out of the public record.
A trust makes sure your assets are managed the way you wish during your lifetime, in case you become disabled, and after your death. It's a legal contract between at least two parties: you and one or more trustees.
When you establish a trust, you specify who you’d like to act as trustee, and exactly how and when you’d like your assets to be managed and/or distributed to your beneficiary or beneficiaries. Trustees can be individuals or financial institutions, such as a bank, or a combination of the two.
Trusts are generally either revocable and irrevocable. A revocable trust, sometimes referred to as a living trust, allows you to access your assets and adjust the terms of the trust, including any successor trustees or beneficiaries, at any time while you're alive and not incapacitated. An irrevocable trust, once set up and funded, usually can’t be changed.
Typically, if people choose to include a trust in their estate plan, a will is also drafted. The will ensures that any assets not titled in the name of the trust upon your death will “pour over” into the trust and be distributed according to its terms.
If you’re writing a will:
If you’re considering a trust:
Don’t forget to communicate with your partner, children and other loved ones when you’re making financial decisions that affect the whole family.
Neither a will nor a trust is a one-time document. It’s important to check in and update these documents on a regular basis to ensure they reflect your current assets and wishes.
Certain milestones should motivate you to talk with a financial professional about reviewing the details of your will or trust. For example, if you get married or divorced, have a child, or gain a significant new asset, make sure your new situation is appropriately reflected in your will and/or trust.
Read more about trust and estate planning.