If you’ve been learning about estate planning, you probably know the basics: making a Will, assigning a power of attorney, what a Trust Fund is, and what inheritance can mean for heirs. Wills and Trusts are vital to estate planning, and are important measures to take if you want to see that your assets are properly managed and passed down. But estate planning doesn’t stop at just the basics. There are intricacies to Wills, Trusts, tax laws and considerations, and inheritances that can enter into play as well.
That’s why estate planning is an individualized process. Each estate is unique, and each set of beneficiaries may require special provisions made within a Trust or a Will. These unique considerations can be made to benefit those who are set to inherit from an estate or take over management of an asset or several assets. The use of Pari-Passu in Wills and Trusts is one such instance of a specific direction within an Estate Plan. Read on to learn what Pari-Passu is and how it applies to Wills, Trusts, and inheritance.
What does Pari-Passu mean?
Like many legal terms, Pari-Passu is a Latin phrase. Pari-Passu translates to “equal footing.” This term is used in several different financial scenarios in which assets are to be equally managed without preference. That means no one party has a greater financial burden than another, nor would they receive a greater payment than another party in the agreement. Pari-Passu is used when equality is the chief concern – all parties are to be treated equally in terms of financial obligation or claim.
Pari-Passu Distribution for Wills and Trusts
Pari-Passu may be seen in Wills and Trusts when assets are meant to be shared equally between two or more beneficiaries. Splitting the ownership of an asset or the distribution of an inheritance equally may be needed when dividing an estate between family members or several unrelated beneficiaries. Since an estate may include assets such as bank accounts, investments like stocks and bonds, pensions, real estate, and other types of tangible and intangible property, dividing these assets equitably may be a top priority.
When someone makes a Will or a Trust as part of their Estate Plan, they may opt in for Pari-Passu Distribution for several reasons. Firstly, they may have several heirs and want to make sure that each one of them will have equal footing when the estate is distributed. This may be the case when assets are to be divided amongst several adult children, or divided between a spouse/partner/companion and children. Secondly, like creating a Will or a Trust, Pari-Passu Distribution is a way of ensuring that assets are, in fact, shared equally. Family members and other loved ones may have a verbal agreement to split everything evenly, but attitudes may change once the estate holder dies. Having the proper estate planning documents can limit infighting amongst heirs and keep greed or unethical acts of self-interest at bay. Thirdly, there are times when equal distribution of an asset’s ownership or management may be in the best interest of the asset itself, such as a business or other venture; and there are times when dividing ownership of an asset amongst several heirs may minimize their tax burden too.
An Pari-Passu Distribution is used in Wills and Trusts when each person named in the Will or Trust is intended to share the assets covered by the Will or Trust equally. If Pari-Passu distribution is used in these types of estate planning documents, each beneficiary named will get the same amount of money or the same share of ownership in an asset.
Assigning an Pari-Passu Distribution in a Will
When you create a Will, you will list several important directives within that legal document. You will likely create a Living Will addressing your wishes for your medical care and end-of-life directives. You’ll name a Power of Attorney or more than one Powers of Attorney, which gives the designated person(s) the ability to make medical and financial decisions for you if you are not able to. You’ll itemize the assets in your estate – all valuables you own and want to account for in writing. And, you will name your beneficiaries. In some Wills, specific assets are granted to specific beneficiaries. If you are assigning an Pari-Passu Distribution in a Will, all the beneficiaries you name will share your estate equally.
Assigning an Pari-Passu Distribution in a Trust
Creating a Trust is another way to transfer assets from the original owner to a new owner. Whereas the conditions of a Will go into effect upon the Will-maker’s death, a Trust can be used to distribute assets at any time. Often, distribution of a set amount of money (capital) or revenue from other financial assets such as stocks, bonds, or a business can be managed through a trust. Trusts can also be established to transfer real estate from one person to another. Trusts can be used for a one-time asset transfer or to give regular payments to its beneficiary. If an Pari-Passu Distribution is assigned to a Trust, the two or more people named as beneficiaries of the Trust will receive equal amounts of money from the Trust and/or equal ownership of the asset transferred to them via the Trust.
Other uses of Pari-Passu
Pari-Passu may also come up when dealing with bankruptcy, creditors and debt, liquidation of assets, certain loans and bonds, and equity shares. This term is used when two or more parties have equal rights in the matter.
Pari-Passu and your Estate Plan
Creating a Will and possibly setting up a Trust is an important part of estate planning. But making sure that that Will or Trust is tailored to reflect the specific wishes you have for your loved ones is also very important. That’s why we at Trust & Will offer customizable estate planning documents online. When you create a Will or Trust online, you can plan for each of your assets and how they will be managed or divided in the future. We make the process comprehensive and simple from start to finish. Take our quiz to see where you should start, or compare our different estate planning options now. Get started today!