When it comes to estate planning, wills and trusts are often listed together as two of the essentials every good estate plan needs. While they both work in similar ways, there are several key differences between the two that allow them to serve different specific purposes. Many thorough estate plans may benefit from having both, while some may only need one over the other. The key to adequately using each is understanding the purposes they serve and how they may help you leave the legacy you desire for your loved ones.
What is a Will?
In its simplest form, a will is a document that includes instructions for who receives your money, belongings, and any other assets in your possession after you die. Wills are often an essential piece of every estate plan, and most people would benefit from having one even if they do not believe they have impressive assets.
If you aren’t in possession of anything you think would be beneficial to pass on to someone after you die, then you may not need a will. But it can be easy to overthink some of the things you may want to consider passing on. For example, if you own your house, your car, a business, stock shares, or any other substantial belongings, you’ll likely want to consider what happens to these items in the event of your death. You may even have precious family heirlooms, collections, or other meaningful belongings that may not have extensive monetary value, but you would like to keep in your family. It’s important to take stock of the items that make up your life and consider which are most important to pass on.
If you want certain individuals to receive certain belongings, a will is a necessity. Without one, disagreements over who should get which of your assets can delay probate, or the process by which a court helps determine your will and distributes your assets where necessary. Probate is a mandatory process for divvying up assets inside wills and can be time consuming and costly for your loved ones if your will isn’t put together correctly or contains vague information.
Basic wills are generally inexpensive and can cover many items in your estate after your death. They can even help distribute the proceeds of a life insurance policy or help you name a guardian for your minor children. But a will is carried out in broad strokes and leaves some room for interpretation by others if deemed necessary. If you want to specify a narrower band of assets, your estate plan will also need a trust.
What is a Trust?
Although the first notion is that trusts are meant for millionaires, this is far from the case. It’s true that large or wealthy estates can benefit from creating a trust, but so can smaller estates. A trust is an even better way to more precisely control how your assets are passed on after you die. Trusts go so far as to include specific instructions for how and when your beneficiaries receive their designated assets. For example, if you want to leave a large sum of money to a grandchild to specifically use for college tuition, a will does not specify those parameters. A will likely distributes that sum in full to the grandchild after you die, leaving them to do whatever they please with it. By creating a trust, you can specify parameters that the grandchild may not receive any of the funds until they turn 18, or until they enroll in college, or even that they only receive a specific amount at a time. You can designate any details and parameters you would like to be upheld.
A trust is its own legal entity. That means in most cases, it is not required to go through probate procedures after your death, as a will is. Probate allows for some interpretation by the court for how your estate is distributed, but trusts are set in stone and their assets are usually not affected by a court.
Avoiding probate has many advantages. Probate becomes part of the public record, meaning anyone can see what assets you had and where they went. Trusts provide more privacy because their contents are not made public. Distributing your assets through trusts can also help save your beneficiaries time and money in probate proceedings. And creating an irrevocable trust, or a trust that you cannot make changes to once it’s been completed, can even be beneficial to you, the grantor. Doing so can decrease the value of your estate, helping you qualify for things like Medicaid or similar income-restricted programs. It may even help you avoid certain estate taxes.
What Isn’t Covered by Wills or Trusts?
While wills and trusts can be essential items for instructing your beneficiaries on how you would like them to receive your assets, there are still many items and provisions that wills and trusts don’t sufficiently address.
A common misconception is that wills can address your medical choices. But this is not the case, because a will takes effect after your death. Similarly, a power of attorney is someone you designate to make legal decisions on your behalf should you become unable to do so yourself. But if you designate them in a will or trust, which is viewed after your death, their role becomes obsolete. If you have concerns about making medical decisions should you become incapacitated, you will need a living will, or an advance medical directive.
In another important example, while your will can name guardians for your minor children, it is often recommended you provide more thorough guardianship designations for this process. Naming new guardians for your children is an extremely important decision and should be spelled out with full details and provisions that wills and trusts don’t cover.
Funeral instructions and final arrangements you wish to have made in the event of your death are also not covered by wills or trusts. You will need a separate letter of instruction detailing your final wishes and should let the executor of your estate know where it’s located prior to your death.
These are just a few examples of the items and scenarios neither a will nor a trust may cover as sufficiently or thoroughly as you intend. For this reason, having a knowledgeable and practiced estate planning attorney help you draft the documents you need is essential. The Whisler Law Firm prides itself on working with clients to create estate plans that can help ensure their family’s well-being and provide peace of mind. To make an appointment with our estate planning lawyer, call 833-529-5677 or contact us online