Estate planning is the process where you decide what happens to your property after death. For those unfamiliar with such planning, it is difficult to know where to begin. There are so many choices, starting with how you want to distribute your assets. People often confuse a wills and trusts, and they have a hard time understanding which one to choose.
We will expand on tem as we continue, but first, let’s offer a general definition for each.
- Wills completely distribute your property after death. Once all assets are distributed, your estate essentially disappears.
- Trusts operate as a separate entity. They can continue after your death.
Of course, there are caveats and exceptions to each of the above definitions, but this is a good starting place for understanding each.
In this article, we will compare and contrast wills with trusts, and we will offer advice on which is right for you.
Similarities Between Wills and Trusts
Each Can Be Revised
As life evolves, so must your estate plan. Perhaps you get divorced or remarried. Maybe one of your beneficiaries passes on themselves, and you must restructure property distribution. For each new phase of life, you have the option to revise or completely restart your estate plan.
Each Names Recipients
Both wills and trusts are designed to pass property on to your surviving friends and family. How each achieves this goal is different.
- Wills are designed to pass on everything at once. Ultimately, the purpose of a will is to deplete your estate, moving all property along to its deserving beneficiaries. It takes time to move every single item to its receiver, but once the process is over, there should be no property left in the estate.
- Trusts can dole out property over time. You have more flexibility with a trust. You could, for example, wait to give the home to your grandchild when they turn 18. You can put members of the estate on an allowance, giving them only a certain amount of money each month, year, etc.
Each Offers Protections from Creditors
It’s no secret that creditors want to be paid. In life, they will make threats of repossession. Once you are gone, there are certain protections that can protect your property as ownership is passed to someone else. This recipient could still be responsible for continued payments, but they can rest easy that the property will not be taken from them.
Features Unique to a Will
You Can Choose Who Cares for the Children
Within a will, you can make choices not only for your property, but also for you kids. You cannot, however, usurp the regular laws. If you are married, for instance, your spouse will naturally take custody of the children. Even if you are single, the other living parent will take the children if they retain parental rights. In terms of a will, you can make choices when the kids have no other parent.
In our modern times, family is sometimes a matter of experience over blood relation. A will is beneficial because you can leave your children with a deserving adult. Perhaps you have a close family friend who has been involved with the kids since birth. They are seen as family members, and the kids call them “aunt” or “uncle.” In a will, you can transfer guardianship to this person. You are not forced to leave the kids with a blood relative who is estranged or untrustworthy.
You Can Name Your Executor
The executor is someone who carries out the wishes of the will. It is a large job. First, they must manage all leftover debts and bills associated with the estate. Then, they must officially transfer property ownership from the estate to the beneficiary. This alone can take considerable time. Leases, mortgages, and other important red tape must be managed. Even if you choose to leave a very specific heirloom to someone, there is paperwork involved.
Without naming an executor, courts can give this job to a total stranger. You may find it more comforting to give this job to someone you know and trust, someone who cares enough to do the job correctly.
Features Unique to Trusts
You Can Make Life Plans
Estate planning is not exclusively about death. Sometimes, you must make decisions for what happens in life. If are rendered incapable of making your own decisions, you must transfer power to a trusted individual. This is called “power of attorney,” and it can be included in your trust. This person can make financial decisions, healthcare decisions, or both for you. You can give financial powers to one person and medical decisions to another. You can choose when these powers transfer, and you can alter them when they are in use. Creating a plan for this transfer of authority now will protect both you and your estate for the future.
You Can Avoid Probate
Probate is the process where an executor carries out the wishes of a will. This can take months or even years. With a trust, wishes can be executed much more immediately, with the trust operating as its own entity.
You Can Keep Your Privacy
Wills become a matter of public record. Anyone can access the details of your estate, and bad faith actors can use this information for their own gain. As a continuing entity, a trust remains private, outside of the public’s gaze.
Your Assets Are More Protected
Trusts are harder to challenge. During probate, people can go after the executor, attempting to have them ousted. Executors are more susceptible to lawsuits than trustees. Estates and trustees can still be attacked, but it is harder to do so.
Your Wealth Can Go on Without You
As a living entity, a trust can continue to operate and accumulate wealth. It can buy and sell property, invest, and so forth. There is an old cliché that by the third generation, all the money you leave behind is gone. A trust can future-proof your estate, keeping your lineage comfortable well into the future.
To manage the trust, you can appoint a trustee. This person acts almost as the CEO of a company, and if the estate is large enough, managing it can be their full-time job.
Which Is Right for You?
Wills are beneficial for moderate to small estates. They distribute all assets to beneficiaries as soon as possible, helping families move forward and transition to a new life.
Trusts are beneficial for larger estates. They can create a slower distribution of assets, keeping your heirs comfortable without giving them the opportunity to spend all the wealth. You can even grant your trustee power to cut off a beneficiary who is squandering their portion. Expandable, trusts can generate more wealth for future generations.
Ultimately, you don’t have to choose one or the other. You can create both a will and a trust to work together. The trust can continue to generate money for the family, and wills pass along specific items and name guardians for the children.
For help with estate planning, contact our office today. Call (972) 737-4456 or reach out online for a free consultation.