Do You Need A Will or A Trust?
- Posted in: Estate Planning
I am asked often, “Do I need a Will or a Trust?” When it comes to estate planning there are two major vehicles for the distribution of assets: A will and a trust. Both are very useful tools and can accomplish specific goals—but what’s the difference and how do you know which one is best for your family? Whether you need a will or a trust depends on a number of factors, some of which may seem completely irrelevant at first: the size of your estate, the type of assets you have, your goals for that estate, the age of your children, your marital status, and many, many more. But the first step to understanding which tool may be right for you is to understand what each document does.
A Will: A will is a formal declaration of your wishes. It is a document you create to declare the extent of your privately held property (it does not cover joint tenancy property with right of survivorship or assets that have payable-on-death beneficiaries) and what your wishes are for the distribution of that property. You name an executor to carry out your wishes, and you can even include a nomination of guardian for young children in your will. A will does not go into effect until after you die; before then it is simply a legal document that set forth your private wishes. However, once you have passed away your will no longer remains private, it now becomes a matter of public record, available to anybody who would like to view it, and overseen by the court in a sometimes lengthy and expensive process called probate.
A Trust: A trust is a far more extensive and comprehensive tool than a will. In fact, there are many different kinds of trusts, each of which may be used for specific situations. Most trusts created for estate planning purposes are revocable living trusts (or RLTs.) An RLT is a document created not simply to distribute your property, but to own your property on your behalf, to be invested and spent for your benefit or the benefit of your named beneficiaries. As such, a trust takes effect as soon as you sign it and your property is protected by and subjected to the trust parameters as soon as you place them in the name of your trust. There is a lot of flexibility available with a trust, and yours can be created to fit your unique situation. Most RLTs name the trust creators as the initial trustees, nominating individuals or professional fiduciaries to take over as trustee when the creator becomes incapacitated or passes away. The benefit of a trust is that when the creator passes away, property is not merely distributed and that’s the end of it; the creator can instruct the trustee to distribute the money in any number of ways, even to the extent of creating new trusts for each beneficiary for asset protection purposes. Trusts can also last for generations to maximize the tax benefits and the protection for the heirs.
Wills and trusts are important tools in estate planning, each one working in unique situations. Call our office to review your situation to determine which one is best for your family.