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Estate planning is about more than deciding who will receive your property after you die. A well-designed estate plan can help determine how your assets are managed, who can make decisions on your behalf if you become incapacitated, and how your wishes will be carried out after your death.
Two of the most common estate planning tools are wills and trusts. Although they serve some of the same purposes, there are some differences in how they are used. Choosing between them (or deciding to use both) depends on factors such as the size and complexity of your estate, your family circumstances, your privacy concerns, and how you want your assets distributed.
What Is a Will?
A will is a legal document that explains how you want certain assets and property distributed after your death. It can also identify an executor who will be responsible for administering your estate.
One important advantage of a will is that it can name guardians for minor children. For parents, this can be one of the most important reasons to have a valid will.
However, assets distributed through a will generally must pass through probate, the court-supervised process used to administer an estate. Probate can involve court filings, expenses, and delays, depending on the circumstances,
A will also does not necessarily control every asset you own. Certain accounts and property, including many retirement accounts, life insurance policies, and jointly owned assets, may pass directly to designated beneficiaries or surviving owners.
What Is a Trust?
A trust is a legal arrangement that allows a person, known as the grantor or trustmaker, to place assets under the management of a trustee for the benefit of designated beneficiaries.
There are many different types of trusts, but a revocable living trust is commonly used as an estate planning tool. With this type of trust, you generally retain control of the assets while you are alive and can make changes to the trust during your lifetime.
One of the biggest potential advantages of a properly funded revocable living trust is that assets held by the trust generally can pass to beneficiaries without going through probate. A trust can also provide instructions for managing assets if you become incapacitated. However, assets generally must be properly transferred or titled in the name of the trust.
Trust vs. Will: Key Differences
Although both documents can help determine what happens to your assets, there are several key differences. For example, a will generally directs the probate court regarding how your estate should be administered. A properly funded living trust can allow assets held by the trust to avoid probate. Avoiding probate may make the administration process more efficient and can be particularly valuable for people who own real estate in multiple states.
Privacy is another issue. Probate proceedings can become part of the public record. Trust administration, by comparison, is generally more private. For people who do not want details about their assets or beneficiaries made public through probate, privacy can be an important consideration when deciding whether to establish a trust.
A will generally takes effect after death. It does not manage your assets while you are alive if you become unable to handle your financial affairs.
A living trust can provide a mechanism for a successor trustee to manage trust assets if you become incapacitated, potentially reducing the need for a court-appointed conservator or similar proceeding.
A will has an important function that a revocable living trust does not replace: It can nominate a guardian for minor children. Parents should therefore consider having a properly drafted will even if they also establish a trust.
In terms of cost and complexity, a basic will is generally simpler and less expensive to establish than a comprehensive trust-based estate plan. A trust typically requires more planning, legal work, and ongoing attention. Assets may need to be retitled or otherwise coordinated with the trust.
When Might a Will Be Enough?
A will may be appropriate for someone with a relatively straightforward financial situation and a limited number of assets. For example, a person who has modest assets, does not own property in multiple states, and has relatively simple inheritance plans may decide that a will, beneficiary designations, and other basic estate planning documents meet their needs.
Even in a simple estate, however, it is important to coordinate the will with beneficiary designations and ownership arrangements. A will does not automatically override a beneficiary designation.
When Should You Consider a Trust?
A trust may make more sense when an estate or family situation is more complicated.
You may want to consider a trust if:
- You own significant assets or multiple properties.
- You own real estate in more than one state.
- Avoiding probate is a major priority.
- You want greater privacy for your estate.
- You want to control when beneficiaries receive their inheritances.
- You have minor children or beneficiaries who may not be able to responsibly manage a large inheritance.
- You have a blended family or complicated family circumstances.
- You want a plan for managing trust assets if you become incapacitated.
Do You Need Both a Will and a Trust?
For many people, the choice does not have to be a will vs. a trust. A comprehensive estate plan may use both, with the goal of making these documents work together rather than treating each one as an independent solution.
Other estate planning documents may include a durable financial power of attorney, health care directive, and beneficiary designations for retirement accounts and insurance policies.
Contact Us Today
The right estate plan depends on more than the value of your assets. Make sure you have the right strategy in place based on your life, your needs, and your goals.
Planning for the future can be scary and a little daunting. The Lehi estate planning lawyers at Trusted Estate Planning Attorneys can guide you through the process of creating an estate plan that is right for you. Call (385) 993-3523 or fill out the online form to schedule a consultation with our office today.
