When you are thinking about your estate planning process, you will want to establish an estate plan that not only meets your needs but also makes the most sense for you based on your current stage of life. As you think about what you want your estate to entail, it’s likely that you have heard about both wills and trusts.
Wills and trusts are distinctly different legal documents, but if you think that wills and trusts have a lot in common, you are correct! There is a lot of overlap between the two. For instance, they both identify the people who will receive your assets in your absence, but the documents do so in their own ways.
As an example, one main difference between wills and trusts is when they take effect. Wills are not implemented until after you die, whereas a trust goes into effect immediately upon being signed and funded.
If you were to become incapacitated to the point that you are unable to make your own decisions, a will cannot step in to provide any recourse or plan in response to your new circumstances.
Even so, wills can allow you to do the following:
- Name guardians for your children and your pets.
- Designate where your assets will go once you are gone.
- Specify the details of your final arrangements.
Wills offer a beautiful simplicity to the estate planning process, but wait — there are drawbacks as well.
Keep these details in mind:
- Wills offer limited control over the distribution of your assets.
- In most cases, wills require some sort of probate process.
- Wills are public documents, so if there is any information you would prefer to keep private, consider opting for a trust instead.
- Trusts are more complicated than wills, but how do they differ? Trusts, in particular:
- Provide control regarding not only how your assets will be distributed but when they will be distributed as well.
- Are available in more than one form.
- Help you minimize the chances of going to probate if not evading it altogether.
- Come with private distribution of assets.
So you could say that trusts are more complicated to set up than wills are, but if avoiding probate is your goal, setting up a trust is wise.
Having it both ways
Is it possible to have it both ways? Can you draw up both a will and a trust? The answer is yes. While trusts are designed to establish what will happen to your assets, wills give you the opportunity to denote people to serve as guardians for your children, appoint a trustworthy executor for the management of your estate and define your final wishes.
Trusts also differ from wills because while trusts are primarily crafted for the sake of taking care of your estate after you have died, they can also be influential when you are still alive. Alternatively, wills are only put into effect posthumously. But what about how these documents can be contested?
For starters, wills are more likely to be challenged because they can become outdated. They can also be combatted with the claim that the will was made at a point in time when you were not fully of sound mind.
Another possibility is that wills could be contested under the assumption that they were created while you were under the influence of someone else. On the other hand, trusts are far less likely to be contested due to their lack of an expiration date.
Another detail that differentiates wills and trusts is that wills do not offer anyone protections from creditors nor do they come with tax benefits. Dissimilarly, an irrevocable trust is a type of trust that cannot be changed, and it serves the purpose of removing assets from your estate, meaning irrevocable trusts offer both protection from creditors and benefits in a financial sense.
Despite their numerous discrepancies, wills and trusts are both legal instruments that focus on making sure that your assets are allocated to your heirs and according to your wishes. Trusts require more paperwork to establish than wills do, and trusts are typically more expensive to prepare than wills.
Where should you go from here?
Establishing clear expectations and documenting them in written form will significantly benefit your loved ones in your absence. Both trusts and wills are avenues that you can make use of when outlining what you would like to have happen regarding your end-of-life wishes.
Ultimately, the main difference between wills and trusts has to do with the work involved with establishing them. For instance, wills are regarded as lower maintenance than trusts, as they are usually in need of updates every three to five years. On the other hand, trusts must be updated every time a major life event takes place, such as marriage or the birth of a child.
So what’s the takeaway here? As always, talk to me and to financial advisers who can assist you as you figure out which instruments are best for you and your situation. That way, with a personalized approach to your estate planning process, you can ensure that your long-term goals are met.