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If you have explored strategies for your estate planning, you have likely come across two commonly used estate planning tools in your research – wills and trusts. While they may seem similar, they serve different purposes and are essential for carrying out your wishes. It is important to understand the primary differences between a will and a trust so you can make informed decisions about your estate.
What Wills and Trusts Do
A will is a legal document that outlines how you want your assets divided and who your beneficiaries will be. It can also be used to carry out other types of wishes, such as funeral arrangements and designating guardians for young children.
A trust is a financial arrangement where the estate-holder designates a trustee to distribute or manage their assets on the behalf of beneficiaries. Trusts are generally considered to be a flexible option because they can often be drafted, edited, enacted, or dissolved at any point in a person’s life. There are several types of trusts which can be used to accomplish specific estate planning goals.
While many estate planning attorneys recommend having both a will and a trust for comprehensive protection, what is best for you will depend on your individual circumstances. An honest and experienced estate planning attorney can help you determine which option, or combination, is most suitable for your needs.
When Wills and Trusts Take Effect
Wills or what is commonly known as a “Last Will and Testament” only take effect when the estate holder has passed away. A will essentially outlines how your assets should be distributed among your beneficiaries.
Unlike a will, a living will takes effect if you have a terminal disease or are at the end-of-life stage. It is used to express one’s wishes pertaining medical treatments such as whether or not you may want to be kept alive by artificial means.
A trust can take effect during the person’s lifetime (an inter vivos trust) or after their death (a testamentary trust). Testamentary trusts are similar to wills, which means they can be enacted only when the person has passed. Other types of trusts may go into effect when a person becomes incapacitated or long after their death. A trust can be revocable or irrevocable depending on the goals of the trust.
What Property Can Be Inherited Through Wills and Trusts?
Money, stocks and bonds, real estate, insurance policies, retirement savings, or items such as artwork, cars, or jewelry can all be designated to beneficiaries of a will.
Like a will, trusts can also designate financial assets or valuable items to beneficiaries. However, a trust may only direct the distribution of assets that have been re-titled into the name of the trust. For example, ABC created a trust with the trust providing for the distribution of his house to his grandchildren. However, ABC never retitled the deed of his house into the name of the trust therefore the trust’s direction does not control. It is important to make sure assets are properly retitled after the creation of a trust to ensure the terms of the trust controls.
How Mental Disability Affects Wills and Trusts
While a will is a great tool for estate holders who want their assets distributed upon their death, it does not really protect them, should they become incapacitated (such as from Alzheimer’s or dementia). This means a will does not provide for asset protection in the event of long-term care is needed. There is also no asset management provisions if one becomes disabled and unable to manage his/her financial affairs.
There are different types of trusts one can utilize depending on your goals. Trusts are often used in anticipation of disability and long-term care needs. It is a tool to provide specific terms relating to asset management. It may be a trust for the settlor (i.e. the creator of the trust) to set up a way for his/her assets to be managed if he/she were to be incapacitated. A settlor can also make provisions for beneficiaries like adult children with intellectual disability, ensuring the assets they leave for their adult disabled children are properly managed and used for them without jeopardizing their government benefits.
Wills Require Probate
Wills are an affordable way to outline how you want your assets distributed, but when it comes time for your beneficiaries to inherit these assets, they can sometimes run into legal challenges. One of the challenges is probate, a legal process where a deceased person’s estate is settled through court. It is the court process to prove the deceased person’s will is a valid will. Having a will does not avoid probate. The probate process can be time-consuming, costly, and potentially complex, especially if the estate is large or if there are disputes among beneficiaries.
Through a trust, the probate process can be avoided by designating a trustee who distributes your assets directly instead of through a court. This is assuming that all assets of the deceased person has been properly retitled into the trust name therefore controlled by the trust terms.
Wills Become Public Record
If you are looking for a private way to distribute your assets, a will is not likely going to be the best option. Wills are public records which means that anyone will be able to see who inherited what and how much.
Trusts can be as private as you want them to be. The terms of a trust, including the beneficiaries and the assets being held, can be kept confidential. This is because trusts are not typically public records, unlike wills.
What To Consider When Making A Will
Your specific goals should guide your choice between a will or a trust. If you are leaning towards a will, you may need to consider factors like your overall estate planning goals, legal requirements, and potential benefits or disadvantages. Some questions you may want to consider when making a will include:
- Who will inherit your assets?
- What happens if a beneficiary dies before you?
- Who will manage your estate?
- What are your estate planning objectives?
- How do you want to divide all your assets?
- How do you want to dispose of your digital assets?
What To Consider When Making a Living Trust
A living trust allows you to transfer ownership of your assets to a trustee during your lifetime, offering more privacy and quicker distribution of assets. They also provide more control over when and how beneficiaries receive assets, which is particularly useful for managing complex estates or providing for minors.
Here are some questions to consider when creating a living trust:
- What are your goals for creating a living trust?
- Who will manage the trust?
- Who will inherit the trust assets?
- What are the tax implications of creating a living trust?
Trusts offer greater control and privacy at a higher cost and complexity, but depending on your estate’s size and your specific needs, you may benefit from using both a will and a trust to ensure your wishes are fully honored.
Have A Question For A Wills & Trusts Lawyer?
Whether you choose a will, trust, or a combination of these options for your estate planning, a qualified estate planning attorney can help ensure that your wishes are protected. An attorney for wills and trusts can guide you through the process, help you select the most suitable options for your goals, and oversee the implementation of your estate plan. If you’re ready to begin the estate planning process, call Pitta & Baione LLP.