Estate planning can be a confusing process. You not only have to think about how to share your assets between your loved ones, but also must decide which legal instruments are best suited to carry out your wishes. Two of the most prevalent estate planning tools are wills and trusts. While they may seem similar, they differ in important ways that can affect the administration of your estate. Let us learn more about the key differences between the two.
Key Facts About Wills
A will is a legal document that outlines how a person’s assets and affairs will be handled after their death.
Simplicity: Wills are generally straightforward and less expensive to create compared to trusts. You can draft your own simple will with a template or have a Tempe Trusts and Estate Planning Attorney draft a more complex one to address specific needs.
Guardianship and Executors: A will can specify who will be the guardian of children and who will be the executor of the estate. This aspect is crucial for parents and those who want to ensure a trusted person manages their estate.
Probate Process: One of the most significant characteristics of a will is that it is subject to probate. Probate is the legal process through which a will is validated, and assets are distributed under court supervision. This process makes sure that debts and taxes are paid and that the distribution of assets is overseen. Probate can be time-consuming and public, which some people prefer to avoid.
Flexibility: Wills can be easily changed or revoked during the testator’s (the person who made the will) lifetime, as long as they are competent. This flexibility allows for adjustments as circumstances change, such as the birth of a child or a significant change in financial status.
Key Facts About Trusts
A trust is a legal entity specifically created to hold or manage assets on behalf of its beneficiaries. Trusts come in various forms with different purposes, such as avoiding probate, minimizing taxes, and protecting assets.
Avoiding Probate: A major benefit of a trust is that it avoids probate. Assets in a trust can be distributed without court involvement, making the process quicker, private, and often less costly. This can be particularly beneficial in states where the probate process is known to be lengthy and expensive.
Types of Trusts: There are multiple types of trusts. A revocable living trust can be changed or canceled by the grantor (the person who creates the trust) at any time during your lifetime. It provides flexibility and control, allowing for adjustments as circumstances change. A irrevocable trust cannot be changed or revoked once it is established. It offers significant benefits in terms of asset protection and tax planning but at the cost of flexibility.
Management of Assets: Trusts offer a high degree of control over how and when assets are distributed. This can be advantageous for individuals who want to provide for beneficiaries in specific ways, such as distributing assets at certain ages or under certain conditions. Trusts can also manage assets during the grantor lifetime, which can be useful in the event of incapacitation.
Cost and Complexity: Trusts are generally more expensive and complex to set up and maintain compared to wills. They often require the assistance of an attorney who specializes in estate planning, and there may be ongoing administrative costs associated with managing the trust.
Making Your Decision
The size and complexity of your estate are primary factors when deciding between a will and a trust for your estate planning. For smaller, straightforward estates, a will may suffice. However, if you possess a larger or more complex estate, a trust can offer better control in terms of detailed distributions and providing for future conditions.
Privacy concerns are another critical aspect. Unlike wills, which go through the public probate process, trusts maintain privacy and ensure that details about your estate and beneficiaries remain confidential. This can be very appealing if you prefer to keep your financial matters out of the public eye.
Control over the distribution of your assets is significantly enhanced with a trust. Trusts allow for precise instructions on how and when beneficiaries receive assets, such as at certain ages or milestones. This level of control is not possible with a will, which generally leads to an immediate distribution of assets after probate.
Incapacity planning is a crucial factor as well. Trusts provide a mechanism to manage your assets during your lifetime if you become incapacitated, ensuring that any financial affairs are handled according to your wishes. Wills, on the other hand, only take effect after death and do not offer provisions for incapacity.
Lastly, the state laws and probate process where you reside can influence your choice. In some states, probate is relatively simple and inexpensive, making a will a practical option. In others, the probate process can be more cumbersome, making a trust much more advantageous.
Both wills and trusts have their distinct advantages and potential drawbacks. Given the complexities involved and the significant impact on the future of your hard-won estate, consulting with an estate planning attorney is recommended. An experienced attorney can give you personalized advice and help you decide the best method of managing your assets and distributing them according to your wishes.
