When it comes to estate planning, wills and trusts are household names. Both of these instruments are excellent tools for ensuring your assets are protected and that your wishes are carried out. In the battle of will vs trust, there isn’t necessarily a ‘winner’ since either one could be more suitable, depending on the circumstances. There are many similarities and differences between them, and each has its pros and cons. Here’s how to determine which one is best for you and your loved ones.
Will vs Trust: What’s the Difference?
By understanding the key differences between these documents, you’ll be better able to determine the best option to protect your assets and safeguard your legacy.
A will (formally known as a last will and testament) is a legal document that specifies your testamentary wishes. These wishes can be in relation to things like burial preferences and suitable guardians for children. Of course, a will also specifies your wishes as it relates to assets like real property, stocks, and vehicles. With a will, you can bequeath property, cash, and other valuables to relatives, friends, and even charitable organizations. If you’re indebted, you can also make provisions for creditors in a will.
On the other hand, a trust is a special legal relationship between you and an appointed person (known as a trustee), whereby they have the right to hold assets for the benefit of a third party. A trust can be used to specify how you want your assets to be handled after your death, as well as during the course of your life. While your will only takes effect upon your death, a trust is effective immediately after it’s executed.
Will vs Trust: Pros and Cons
Wills
A will allows you to appoint an executor to be in charge of your estate. This person has the responsibility of ensuring that your wishes are carried out. When you write a will, you’re able to choose someone you trust so you can feel confident in your estate plan. Without a will, the court will appoint an administrator to handle your estate. This is likely to be a person you may not have chosen or even someone that you do not trust or know well.
Wills allow you to specify your funeral preferences. Many people use wills to let loved ones know that they would like to be cremated or that they would like to be buried at a specific place. One advantage of a will is the ability to appoint guardians for your children in the event of your passing. Another major advantage of a will is its flexibility. At any time, you can choose to amend or revoke your will. If your circumstances have changed or if you’ve acquired new assets, it’s easy to update your estate plan.
Despite these benefits, there are a few drawbacks to consider. There is a possibility that your loved ones may face challenges due to a lengthy probate process in court. There are many instances of people (such as other relatives, associates, or people claiming to be creditors) coming out of the woodwork to challenge a will. Another factor to note is that your will becomes public record once it is filed in court. Finally, a will may not adequately deal with taxes, leading to heavy sums being deducted from your estate and the pockets of your beneficiaries.
Trusts
The major advantage of a trust is its ability to address some of these drawbacks. The greatest benefit of a trust is that it allows your loved ones to bypass the probate process. As mentioned earlier, probate can be time-consuming and even contentious. The process can also be costly due to attorney’s fees, executor fees, and taxes. By avoiding probate court, you are also maintaining the privacy of your estate. There is also far less of a chance of a trust being challenged in court.
Trusts allow a great deal of flexibility as it relates to the distribution of your assets. Because your assets do not need to be distributed immediately after death, a trust allows you to apply conditions to the administration of your estate. For example, you can delay the distribution of assets to a child until after they attain a certain age or upon achieving a milestone, such as graduating college. In this way, you can prevent children from squandering their inheritance or making bad financial decisions.
A crucial advantage that a trust has over a will is that it enables you to make provisions in the event of incapacitation, and not just in death. In this way, you can avoid the possibility of being indefinitely trapped in a conservatorship. This is when the court appoints a representative to manage your affairs if you become physically or mentally incapacitated. A trust allows you to safeguard your future independence and dignity.
Due to its more technical nature, it’s often more costly to execute a trust than a will. However, the added cost is a small price to pay for the level of control and peace of mind that a trust affords.
Will vs Trust: Choosing What’s Right for You
Estate planning is never one-size-fits-all. Your unique estate plan will depend on your lifestyle, your relationships, and of course, your assets. The best estate plans are often a strategic combination of a will and trusts. By meeting with an estate planning attorney, you can create the most ideal plan for yourself, your loved ones, and your legacy.
