Wills and trusts are two of the most versatile and powerful tools you’ll have when making long-term plans for your estate. But what are the differences, and which one should you use? Click through for a review of wills and trusts.
A will is a written document expressing your wishes for disposal of your estate and can also name guardians of minor children. It becomes active after your death. A trust is a legal vehicle that holds assets and is managed by a trustee for the benefit of another party. There are several different kinds of trusts.
Wills must go through probate, where they are examined by an authorized court administrator — a lengthy process. Trusts aren’t required to go through probate.
Let’s take a deeper dive.
Basics of a will: The most common type of will is a testamentary will, which states how you want your affairs handled and assets distributed after you die. You can include a directive about how you want your funeral or memorial held. A will gives insight and direction about the handling of assets to your beneficiaries. You can address how you’d like them to use what you have left them. In most cases, your will becomes public upon your death.
Basics of a trust: You may create a trust for the primary purpose of avoiding probate court. A trust covers only property that has been transferred to the trust and is held in the trust’s name. That means you may still need a will if you have a trust that covers only some of your property.
A revocable living trust transfers property after death to loved ones. It’s called a living trust because it’s created while you are still alive. It’s revocable because it may be changed while you’re living. You maintain ownership of the property held by the trust while you’re alive.
A living trust passes property outside probate court with no court or attorney fees after the trust is established. Your property can be passed immediately and directly to your named beneficiaries. A trustee will be named to control the distribution of assets. Your estate remains private and passes directly to your heirs, you have no probate attorney or court costs, and your loved ones may be able to avoid being tied up in probate court.
Trusts tend to be more expensive than wills to create and maintain, leading to a popular misconception that they’re only for the very wealthy. However, even those with smaller estates may find a trust useful and well within their budget.
So what should you choose?
Deciding between a will and a trust is a personal choice. Even though, as noted, a will is typically less expensive and easier to set up than a trust, there are many situations in which you will want both vehicles. Assets you specifically transfer to your trust are subject to its terms. If you leave anything out, your will, if properly drafted, will cover it.
The bottom line? Speak with legal and financial professionals who can help you choose the right estate planning vehicles for your situation.