In estate planning, there are two main ways that individuals can ensure that their assets are distributed according to their wishes: a will or a trust. Both offer particular advantages and disadvantages; both are good options for people in various circumstances and can help guarantee that your wishes regarding your money, property, and other possessions are appropriately handled after your death.
While neither estate planning tool is complicated, some fundamental differences could make one or the other more advantageous for you and your family. In the following few paragraphs, we’ll discuss the differences between wills and trusts and provide some tips to help you decide between the two options.
Trust vs. Will: What Are They?
Wills are by far the most common estate planning tool and are the least complicated of the two options. At its simplest, a will is a legal document containing instructions for distributing the assets of an individual (referred to as a testator) after their death. Wills can be as specific and detailed as the testator wishes and can include:
- How the testator’s property and assets should be divided amongst their surviving relatives.
- Charitable donations from the testator’s estate to organizations, churches, or other beneficiaries.
- Instructions for the testator’s funeral and burial or cremation plans.
- Names of people who should become guardians of the testator’s minor children.
Wills are easy to prepare with the help of an attorney, or there are online tools that can assist in the writing of a will. As soon as the testator and two witnesses have signed the will, the will is a valid legal document and can be executed through the probate court when the testator dies.
Trusts are considerably more complicated to establish than a will but provide some distinct advantages. While there are several different types of trusts used for estate planning, they all follow roughly the same model:
- While a person (the trustor) is still alive, they place their assets into a trust, which takes legal possession of those assets. A person or organization called the trustee becomes responsible for managing the assets.
- During the establishment of the trust, the trustor can specify what should happen to the assets after they die. These instructions can be incredibly detailed and include precise information about when specific individuals should receive their inheritance and under what conditions (i.e., a child might receive their inheritance on their 21st birthday, on the condition that they remain in school until that point).
- After the trustor’s death, the trustee distributes the assets according to the terms of the trust.
Trusts can be revocable or irrevocable. In the former, the person establishing the trust usually selects themselves as their trustee, and they retain complete control of and access to their assets while they’re still alive. In the latter, the person establishing the trust usually selects another person or an organization, like a law firm or financial organization, to serve as trustee. In these cases, the person’s assets are no longer under their direct control but are managed on their behalf by the trustee.
Unlike with a will, the terms of a trust are private and not a matter of public record. Also, unlike wills, trusts bypass the probate process since the funds are technically passing from the trust to the beneficiaries, not from the trustor. If established correctly, trusts can also reduce or eliminate the estate tax burden for estates valued above the minimum threshold for estate taxes.
Finally, a trust can only manage a person’s property and assets. A trust cannot establish guardianship of children or specify funeral details.
Trust vs. Will: Which One’s Better for Me?
Each estate planning option has advantages and disadvantages that can make one option better for a particular family. Generally speaking, the larger or more complicated your estate is, the more likely you should consider establishing a trust.
If your estate is simple, containing only a house, personal property, and a bank account or two, and if your estate plan is to distribute all of your assets immediately upon death to a handful of relatives and charitable organizations, a will is probably your better option. Wills are considerably easier to set up, cost significantly less, and the probate process for a simple will is typically straightforward.
A trust may be worth exploring if your estate is complex, with multiple properties, investment accounts, and a wide variety of assets, or if your estate plan requires more in-depth attention. By placing your assets in a trust, a complex estate can be handled more quickly, avoids the need to manage a complicated probate, and can provide tax benefits for your beneficiaries.
Trust vs. Wills: Have It Both Ways
In some cases, someone may wish to establish trust and have a will. This is both a perfectly legal and is sometimes a preferable solution. Some wills are called “pour-over” wills and exist solely to transfer any of a decedent’s assets that weren’t already placed in trust into their trust for disbursal. Even absent a “pour-over” will, a trustor may wish to create a will that contains only guardianship plans for their child or children and their funeral wishes.
Regardless of the option you choose, sound legal counsel during the estate planning process can help you and your loved ones avoid future complications and expenses after you die. A skilled attorney can listen to your wishes and translate them into legally sound planning documents that are unequivocal and help ensure your wishes will be fulfilled.
Want to Ensure That Your Estate Is Handled According to Your Wishes? Contact the Trusted Attorneys at Walker, Hulbert, Gray, and Moore.