According to a recent survey, approximately 32% of people in the United States have established a will. You may have heard about wills and trusts in estate planning, but do you truly understand their differences and which suits your needs best?
A will is a legal document that outlines how you want your assets to be distributed after your death, while a trust is a legal arrangement in which you transfer assets to a trustee to hold and manage for the benefit of beneficiaries according to your instructions.
Will and trust attorney Kelly Hinojosa explains that deciding between a will and a trust can have significant implications for your assets and loved ones. Both legal documents serve as tools for estate planning but they operate in different ways and serve various purposes.
Here’s a breakdown of what each entails and how to determine which might best fit your needs.
Key Differences Between Will and Trust
The rules for wills and trusts vary from state-to-state. For some people, it is easy to decide to go for a will vs. trust because their state requires just two witnesses to attest to their will. In some states like Louisiana and Vermont, at least three witnesses need to attest to it.
When deciding between a will and a trust, you must understand the key differences for effective estate planning. A will is a legal document that outlines your wishes regarding the distribution of your assets after your death. It goes into effect only upon your passing and goes through the probate process, which can be time-consuming and costly.
A trust is a legal arrangement where you transfer ownership of your assets to a trustee to manage on behalf of your beneficiaries. Unlike a will, a trust can be utilized while you’re still alive and can continue to operate after your death, avoiding the probate process altogether.
Another key difference is privacy; wills are public documents that anyone can access, while trusts offer more privacy since they aren’t typically made public. Trusts can provide more control over how and when your assets are distributed to your beneficiaries than wills.
Advantages of a Will
Choosing a will for your estate planning offers specific advantages that cater to your needs and preferences.
One key advantage of a will is its simplicity and cost-effectiveness. Unlike trusts, which can be more complicated and expensive, a will is relatively straightforward and typically less costly. A will allows you to clearly outline your wishes regarding the distribution of your assets after your passing. This can provide peace of mind, knowing that your loved ones will inherit according to your intentions.
Another advantage of a will is that it’s easily amendable. You can update or modify your will as needed to reflect changes in your life circumstances or preferences. This flexibility guarantees that your estate plan remains current and aligned with your wishes. A will allows for the appointment of guardians for minor children, with the opportunity to designate who’ll care for your children in the event of your passing.
Advantages of a Trust
Here are some advantages that cater to your unique financial goals and circumstances.
One significant benefit of a trust is privacy. Unlike wills, trusts aren’t subject to public records, so your financial affairs can remain confidential. Trusts can help your loved ones avoid the probate process, which can be time-consuming and costly. By bypassing probate, your assets can be distributed more quickly to your beneficiaries according to your wishes.
Another advantage of a trust is its flexibility. Trusts can be made to meet specific needs, such as providing for minor children, individuals with disabilities, or even pets. You can set conditions on how and when assets are distributed so that your beneficiaries receive their inheritances in a way that aligns with your values and intentions.
Trusts offer protection in the event of incapacity. If you can’t manage your affairs, a trustee can handle your assets, providing continuity and peace of mind for you and your family.
Limitations of a Will
A will allows you to dictate how your assets should be distributed after your passing but has some significant drawbacks.
One key limitation of a will is that it must go through the probate process, which can be time-consuming and costly. During probate, the court oversees the will’s administration, pays debts, and distributes assets according to the will’s instructions. This process is public, meaning anyone can access the details of your estate.
Another limitation of a will is that it only takes effect upon your death, not if you become incapacitated. If you can’t make decisions due to illness or injury, a will doesn’t designate someone to manage your affairs. A will doesn’t offer the same level of privacy and control as a trust, as it becomes part of the public record.
Limitations of a Trust
One significant limitation is the cost associated with setting up and maintaining a trust. Unlike a will, which can be a simpler and more cost-effective option, trusts often involve more complicated legal processes and ongoing management fees.
Another limitation to consider is the lack of public record transparency. Wills go through probate, a public court process where the contents become part of the public record. Trusts are private documents, and the details of the trust generally remain confidential. This lack of transparency might lead to disputes or challenges from beneficiaries who feel they aren’t being informed or included in the trust’s administration.
Trusts may have stricter requirements for funding and ongoing management. Assets must be properly transferred into the trust, and the trustee must diligently manage those assets according to the trust’s terms. Failure to fund the trust adequately or follow its guidelines could result in the trust not functioning as intended.
Conclusion
Consider your needs and goals when deciding between a will and a trust. Both have their advantages and limitations, so it’s necessary to consult with a legal professional to determine which option is best for you and your loved ones.
