When you evaluate the plans for your estate, terms that seemed simple before they applied to you can get pretty complicated. The basics of a will or a trust start to seem conflicting and confusing, but some careful analysis of your present and future assets can help you determine whether a will, trust, or combination is best for you and the legacy you want to leave behind. The basic definition of wills vs. trusts boils down to the fact that a will is a document that takes effect after you pass away, and a trust is a legal arrangement that can take effect during your lifetime or after your death.
How Do Wills Work?
A will provides specific details about the distribution of your assets after you pass away. It is important to complete the first draft with as much detail as possible, to name an executor to implement your wishes, and to remember to update the document anytime you have a life change that changes how you want to distribute your assets. When you have minor children, your will should include the names and contact information of legal guardians you wish to appoint in the event of your death before your children turn 18 years old.
For the executor to implement your will, the law requires a probate process, which can vary by state. While simple probate processes exist for smaller estates and situations in which all assets are left to a spouse, probate can be lengthy, and typically, there are several steps that are activated when your named executor files the will. The court will then review the filing to validate and authenticate it, at which time it will appoint an executor so the estate has an official manager.
After the court completes the initial steps, the executor’s work really begins. The executor must complete a list of all assets, taking care to ensure all financial accounts, personal property, and real property are included. After asset compilation, creditors are notified, any debts are paid, and the remaining assets of the estate are provided to the beneficiaries as named in the will.
How Do Trusts Work?
A trust also provides details of your estate, but can be in the form of a living trust, which is in place while you are alive, or a testamentary trust, which is activated after your death. Like a will, it is important to ensure that the first draft of your trust contains the assets you want to protect, regardless of whether it will be put into place before or after your death. Trusts provide control over the manner and timing of the distribution of your assets and avoid probate, which also means the distribution of the assets remains private.
When you create a trust, you become a grantor; a grantor must name a trustee to manage assets on behalf of a named beneficiary or multiple beneficiaries. Depending on the type of trust you establish, you may be able to modify the trust (or even dissolve it) after creation or even provide assets to certain groups of beneficiaries without impacting their statuses with the Government for purposes of benefits and taxes.
Trusts can shield assets from creditors and other debtors, but generally, the more protection of your assets you choose, the less flexible the trust is during your lifetime. This type of estate plan also requires continuous management, and trustees must be qualified and exercise great discretion and care when managing a trust. Of note, as laws and regulations change in State and Federal spaces, the trustee must ensure the trust is properly maintained.
How Can You Have Both a Will and a Trust?
Wills and trusts have positives and negatives when it comes to estate planning. For some estates, using both a will and a trust as part of a comprehensive estate plan makes sense to take advantage of the unique benefits of each document. Whether a combination is right for you depends on both your financial situation and your personal goals for your estate and your beneficiaries.
Remembering that wills are public documents and trusts remain private, there may be certain assets you want to protect in a trust while allowing for public filing for other pieces of your estate. Identification of what assets you wish to remain private will make it simpler to create the necessary division between the assets that you place in each of the two legal documents. Overall, you will want to evaluate the balance between a will and a trust based on:
- tolerance for complexity
- cost of maintenance
- flexibility during your lifetime
- desired distribution after your passing
- number of jointly-owned assets
- willingness to require probate
- minor children’s needs
- specific requirements for a beneficiary or group of beneficiaries
Taking time to determine your stance on each of the above points for consideration will help you create the best estate plan for your individual situation and result in the best estate plan you can create and maintain.
No matter which tool you select, you will need to outline your goals for your estate, choose your trustee or executor and beneficiaries, and begin to identify your assets and debts. When drafting the document or documents you choose as part of your estate plan, remember to make note of the areas subject to change so you can update the terms in a timely fashion as necessary. You may also want to have a conversation with friends and family about your plans to prevent confusion or concern when your assets are distributed.
How Can You Be Sure What Is Right For You?
Creating and maintaining a will, trust, or both can be a lot to think about and necessarily requires you to think about your estate and your legacy in ways you may otherwise avoid. It is important to evaluate your assets and debts. Contemplate the use of your assets during your life and after your passing, while also considering your debts and how you want to manage them. Contact Towson Law Office today to receive a knowledgeable evaluation of your current estate and planning of your future assets, you can create an estate plan that best represents you.