When it comes to preparing for the future, estate planning is vital. You want to ensure that your loved ones are cared for, and that your assets will be distributed to the next generation exactly how you want them to be.
That’s why it’s important to understand which estate planning tools are available to you, their benefits and limitations, and which estate planning strategies work best for your situation.
A Baldwin County estate planning attorney can weigh the differences between a will vs. trust-based plan and help you make a decision. Educating yourself on the differences between the two options will prepare you to make that decision much easier.
What Is a Will?
A Last Will and Testament is a legal document that outlines how your money, property, and assets should be distributed upon your death. A will designates the person who should be the executor of your estate upon your death. A will may also name guardians for minor children, if necessary.
A will only comes into effect once you pass away and can be altered freely throughout your life as long as you have sufficient competency to make changes. To become effective, a will must be admitted and proved before a probate court after death.
What Is a Trust?
On the other hand, creating a trust is different. When we talk about a trust compared to a will, we commonly use a revocable trust. Sometimes it’s referred to as a living trust or a revocable living trust. The person creating the trust is referred to as the grantor or settlor of the trust.
Trusts have all sorts of variations, but when we are using the trust as a substitute for probate, a typical setup would be a trust that:
- Is revocable and amendable during the settlor’s lifetime
- Provides for a successor trustee at the settlor’s death
- Provides instructions to the trustee on how the settlor wants the property within the trust distributed to the trust beneficiaries.
In this type of planning, a revocable trust is usually preferred (as compared to an irrevocable trust) because a revocable trust allows you the continued flexibility to make changes in the future. Consider this compared to an irrevocable trust that usually cannot be changed or “revoked” once created.
We typically only use an irrevocable trust where there is a good reason, such as planning for Medicaid.
Other Types of Trusts
- Special needs trusts enable individuals with disabilities to access funds without disqualifying them from receiving government assistance such as Medicaid or Social Security disability income (SSDI)
What’s the Difference?
One of the key differences between a will and a trust is that a will only comes into effect upon proof and admission to a probate court after an individual’s death. A trust, however, is created during lifetime and typically contains provisions for managing the trust property through any period of incapacity before death.
If you are creating a will-based plan, you are making your wishes known, but you’re also planning for your family members or other beneficiaries to go through the probate court process for the distribution of your assets.
Creating a trust-based plan still allows your wishes to be known, but it also allows your loved ones to avoid probate when you pass.
Reasons to Have a Will
At a minimum, having a will is an important part of an estate plan. It ensures that your wishes are carried out at your death and can provide clear instructions to family members regarding inheritance.
A Will Makes Your Wishes Known
A will allows you to decide who inherits what from your estate. You can specify exactly which assets go to each beneficiary and prevent any possible disputes among your heirs.
Additionally, if you have minor children, you can use a will to designate guardianship so that your wishes for their care are known in the event that something happens to you or your partner.
A Will Allows You to Exert Some Control Over the Probate Process
Another benefit of having a will is that it makes the probate process smoother.
Probate is the court-supervised process that involves the court settling all debts and taxes of the estate before distributing assets to beneficiaries. A will allows you to take control of that process and include certain provisions that make the process easier for your executor.
If there isn’t a will, then the probate court must appoint an administrator and distribute assets according to state laws—which may not be aligned with what you wish to happen.
Having a valid will simplifies matters by providing clear direction on how your estate should be handled after death and removing some of the formalities that can make the estate administration process more onerous for the executor.
Reasons to Have a Trust
Probate commences when an individual passes away and ensures your estate is settled properly, but there are several reasons to avoid having your estate’s assets go through probate:
- Probate is often a lengthy process as it can take months to settle an estate.
- It involves costly court fees and legal fees, meaning less of your estate’s assets will go to your beneficiaries.
Since it’s a court process, it’s a matter of public record, so your heirs will have less privacy when your assets are distributed.
The primary benefits of avoiding probate by establishing a trust are that it is much faster, less expensive, and more private than the traditional probate process. This is because the assets in the trust belong to the trust itself, not the individual.
This means they can be transferred to the trust beneficiaries without the need for any interaction with a court. Additionally, the trust assets are often not subject to the same fees and other expenses associated with the probate process.
A Trust Allows You to Control Assets and Mitigate Loss
Trusts offer greater control over your assets both during your lifetime and after your passing and can provide protection from creditors or litigants who might challenge the distribution of your estate.
Additionally, with a trust, multiple generations can benefit from its provisions without worrying about probate court delays or other legal challenges that could arise when settling an estate through a will.
A Trust Keeps the Estate Settling Process Private
Another key difference is that trusts allow more privacy than wills do since they don’t need to be filed in public records like wills. That makes them ideal if you want to keep certain aspects of your estate private after you’re gone.
If a person is not a beneficiary of the trust, then they typically are not entitled to receive a copy of the trust agreement. This can be helpful if you need to exclude a close family member from your estate plan but would like to do it in a private way.
Trusts also help avoid potential confusion among heirs since their terms are laid out clearly ahead of time, and there’s less room for interpretation as opposed to a will where language may not always be so clear-cut.
A Trust Helps Secure Assets and Prevent Loss
Since trusts take effect immediately upon creation rather than only at death (with some exceptions), they can provide needed financial support and control during life if the grantor or settlor of the trust becomes incapacitated or otherwise unable to manage his/her finances independently. The trust may provide a faster and more efficient means to access funds for the trust creator’s trustee to cover expenses such as mortgage or medical expenses during a period of incapacity.
The added layers of security built into the trust helps ensure funds won’t be misused—something parents especially may find reassuring if leaving money behind for minor children or adult dependents with special needs.
A Trust Gives You Peace of Mind
Creating a trust gives you peace of mind knowing that everything has been taken care of properly when it comes time for the distribution of assets after death.
Taking steps now while you’re still of sound mind ensures that your final wishes are honored and alleviates additional stress or conflict for those left behind. With this knowledge secured, you can rest assured that your affairs are orderly and organized when needed most. You also have the knowledge that you have done more than the minimum and gone through the steps to make the transitions. Having a trust is essential for proper estate planning—both now and in the future.
Will Vs. Trust: Which One Do I Need?
The type of legal document needed depends largely on individual circumstances and goals. A lawyer experienced in estate planning could help explain more options and make recommendations tailored to your unique financial and family situation.
The information above should help you determine which option fits your goals and objectives. If you need more information, we can continue the conversation to help you make a decision.
Knowing which one best meets your needs can then allow you to take the necessary steps toward protecting yourself, family members, and beneficiaries.
Contact a Baldwin County Estate Planning Attorney
So, which is better for your financial situation: a will, a trust, or both?
The best course of action is to speak with a Baldwin County estate planning attorney about setting up a will or trust that meets all of your needs. Additionally, don’t forget to update your estate plan, including existing wills and trusts, as your life circumstances change.
By taking these steps now, you can make sure that your wishes are honored upon your passing and that your loved ones are taken care of properly.