Wills and Trusts: A Brief Overview: Both wills and trusts are important tools in estate planning.
What is a will?
A will, also known as a last will and testament is a legal document that outlines your wishes for how your assets will be distributed after you pass away. A will also chooses who will be in charge of making those distributions. This person is commonly known as an Executor but many states actually call this person a Personal Representative. Regardless, they are virtually the same.
Why might just a will be a good choice?
- A will is simple. Wills are straightforward to create especially for individuals with uncomplicated estates.
- A will lets you appoint a guardian for a minor child. Guardianship is another important reason why you might have a will. If you have minor children, a will allows you to designate a guardian to care for your minor children in the event of your passing.
What is a trust?
A trust is a legal entity that holds and manages your assets. During your lifetime, the assets in a revocable living trust are for you and your benefit. Then, after you pass away, the trust holds, manages, and/or distributes the assets to your beneficiaries for their benefit.
Why might a trust be a good choice?
- A will gives you privacy. Unlike wills, trusts are not subject to probate which means that who you are distributing your assets to will remain public. There is no need to involve a court, which is open and public.
- A trust avoids probate. Assets owned by a trust avoid the probate process which can be time-consuming and expensive. A will does not avoid probate. A will requires probate.
- A trust can be helpful in the event of your incapacity. Trusts can provide provisions for managing your assets if you become incapacitated, ensuring your wishes are respected during your lifetime. For example, if it became difficult for you to get around, would you want to sell your house and downsize to something smaller, or move to an assisted living facility? Your trust can address this.
- A trust allows you to provide guardrails for your beneficiaries. With a trust you have the flexibility to select specific conditions for distributing assets to beneficiaries, such as reaching a certain age or achieving certain milestones. For example, you can decide that a beneficiary can only have assets for education like college or trade school. You could also require a beneficiary to reach a certain age before he or she would be eligible to receive any money from your trust after you die.
Many people think you have to put money in trust for your beneficiaries today with a trust, which is untrue for a revocable living trust. Assets in a revocable living trust are for the owner’s benefit for the rest of their life. If there is anything leftover, those assets get distributed to the designated beneficiaries.
There is no one size fits all approach to estate planning. It is important to talk with someone experienced in estate planning. Estate planning is crucial to securing your legacy and ensuring that your loved ones are taken care of with the least amount of burden on them. Whether you opt for a will, a trust, or a combination of both, the key is to create a plan that reflects your values and intentions.