Understanding Your Estate Planning Options
Estate planning is one of the most important steps you can take to protect your legacy and provide for your loved ones. At the center of this process lies a critical decision: should you create a will, establish a trust, or perhaps use both? A will is a legal document that provides instructions for distributing property to beneficiaries after death. A trust is a legal structure that allows an individual (the grantor or trustor) to transfer assets to a trustee for management and distribution according to the grantor’s wishes. While they serve similar purposes, the differences between these tools can significantly impact how your estate is handled.
What Is a Will?
A will is a legal document that specifies how a person’s assets will be distributed to their heirs after death. It provides guidance for handling the estate, helping to prevent disputes among beneficiaries. According to the American Bar Association, a will may include instructions for decisions after death, like the appointment of an executor of the will, guardians for minor children, or funeral arrangements.
Wills only take effect after your death, while having no legal impact during your lifetime. They must go through the probate process, which is a court-supervised proceeding to validate the will and oversee the distribution of assets. The USA.gov website provides excellent resources about the legal requirements for creating a valid will in different states.
While it is an easier process, the simplicity of a will does come with some drawbacks. For example, wills offer somewhat limited control over the distribution of assets. They also most likely have to go through some sort of probate process after you pass away.
What Is a Trust?
A trust is a legal arrangement in which a grantor transfers assets to a trustee, who manages the assets for the benefit of beneficiaries. The Cornell Law School’s Legal Information Institute explains that the trustee is a fiduciary obligated to handle the trust assets by the terms of the trust document and solely in the best interests of its beneficiaries.
A trust is a bit more complicated, but can provide great benefits. Trusts offer greater control over when and how your assets are distributed, apply to any assets you hold inside the trust, and come in many different forms and types.
Unlike a will, a revocable living trust allows you to keep the assets held in trust from going through probate, maintaining privacy for that part of your estate (and for your heirs). It also enables a successor trustee to manage the trust’s assets if you become incapacitated, including paying bills and making investment decisions, if necessary.
Key Differences Between Wills and Trusts
When They Take Effect
One big difference between the two is in how and when they take effect. Wills don’t go into effect until you pass away, whereas a trust is effective immediately upon signing and funding it. This means a trust can be beneficial during periods of incapacity, while a will cannot. The National Institute on Aging offers comprehensive information on planning for incapacity as part of their estate planning resources.
Privacy Considerations
Wills become public records once they enter the probate process, making the details of the estate accessible to anyone. Trusts remain private documents, and their terms and assets are not made public through court proceedings. This privacy aspect is particularly important for family businesses, real estate holdings, and other sensitive financial matters.
The Probate Process
Assets distributed through a will must go through probate court, a public and often lengthy legal process that can be costly. Trusts allow assets to bypass probate, offering a more private and faster way to manage and distribute assets.
Probate is the process your estate goes through after you pass away if you haven’t done proper or comprehensive estate planning. It is a court-supervised proceeding, and depending on how solid your estate plan is, can be costly and take a long time. The Investopedia website provides a detailed explanation of the probate process and its potential drawbacks.
Control and Flexibility
Trusts offer more flexibility and control over how and when your assets are distributed to beneficiaries. Wills provide a one-time distribution upon the probate process’s completion, with less room for specifying terms over time.
Guardianship of Minor Children
Only a will can designate guardians for children in your will. Trusts do not include guardianship provisions for minor children. This makes a will essential for parents with minor children, regardless of whether they also establish a trust. The AARP website offers excellent guidance for parents on this important aspect of estate planning.
Cost Considerations
Creating a will can range from $0 (if done yourself) to $1,000+ if created with an attorney. Simple trusts or DIY trusts can range from a few hundred dollars to over $1,500. Complex trusts typically cost $5,000 or more.
Generally, creating and funding a trust is more complex and expensive upfront than creating a will. However, due to avoiding probate, the cost and time savings on the back end can offset these initial expenses for a trust.
When Is a Will Sufficient?
A will can be sufficient in several scenarios, particularly when simplicity, cost, and specific circumstances align with an individual’s goals and needs. Consider a will if:
Your estate is relatively small and falls below the threshold for probate in your state. Some states have simplified probate processes for smaller estates, making a will a cost-effective option.
Your wishes for asset distribution are straightforward—for example, leaving everything to a spouse or dividing everything equally among children.
You have minor children and need to appoint guardians. This cannot be done with a trust. If ensuring the care of minor children is your primary estate planning concern, a will is necessary. The Nolo legal website provides detailed information on how to select and legally designate guardians for your children.
When Is a Trust Preferable?
A trust can be preferable in various estate planning scenarios, especially when specific goals and complexities require the unique benefits that trusts offer. Consider a trust if:
You want to avoid the time-consuming and often costly probate process. Assets held in a trust are transferred to beneficiaries without going through probate, providing a quicker and more private distribution process.
You are concerned about keeping the details of your estate and asset distribution confidential.
You wish to leave assets to minor beneficiaries and control how and when those assets are distributed (e.g., age milestones for inheritance). You own property in more than one state, which would otherwise require multiple probate proceedings.
You want to plan for potential incapacity. A trust can be used to manage your affairs if you become incapacitated. By appointing a successor trustee, the trust ensures that your assets are managed according to your preferences without needing court-appointed guardianship or conservatorship. The Consumer Financial Protection Bureau offers resources for understanding how trusts can help in managing finances during incapacity.
Can You Have Both a Will and a Trust?
You should often use both a will and a trust as part of a well-rounded estate plan. Many estate planning attorneys recommend this comprehensive approach.
Yes, you can have both a will and a living trust because they do different things. Trusts provide for the management and distribution of your assets during lifetime and after death. A will, on the other hand, allows you to do things like name guardians for your children, appoint an executor for your estate, and declare your final wishes.
A trust focuses on transferring assets quickly, avoiding probate, and enabling continued asset management. A will acts as a safety net for several key elements a trust can’t handle: naming guardians for minor children, appointing an executor to oversee the administration of your estate, and catching any assets not placed into the trust during your life through what’s known as a “pour-over will.” The SmartAsset website provides a comprehensive explanation of how pour-over wills work with trusts.
Making the Right Choice for Your Situation
The decision between a will, trust, or both should be based on your unique circumstances. Consider factors such as:
- The size and complexity of your estate
- Your privacy concerns
- Whether you have minor children
- Properties in multiple states
- Potential tax implications
- Desire for protection during potential incapacity
- Specific distribution requirements for heirs
Consult with an Estate Planning Professional
Estate planning decisions have long-lasting implications for you and your loved ones. While this overview provides a foundation for understanding the differences between wills and trusts, nothing replaces personalized legal advice from an experienced estate planning attorney.
For a comprehensive evaluation of your situation and guidance on the best approach for your needs, we invite you to contact our law firm for a consultation. Our experienced estate planning attorneys can help you create a customized plan that protects your assets and provides for your loved ones according to your wishes. The American College of Trust and Estate Counsel offers a directory of qualified estate planning attorneys if you’re looking for specialized assistance in your area.
Remember, the best time to plan your estate is now – before you need it. Taking action today ensures that your wishes will be honored and your loved ones protected tomorrow.
