Nearly everyone has heard the words “will” and “trust” in the context of estate planning. Most of us have a basic concept of what a will is. Probably few people, however, understand what a trust is and how it differs from a will. Understanding these two basic estate planning tools can help you decide what would best fit your needs when coming up with a plan for transferring your assets after you’re gone properly. If you want that transfer to occur without the need for added expense, time, conflict, or tax consequences, it is best to understand how it can be done. In this blog, we will review the basics of trusts vs. wills, what they do, and why they are beneficial to individuals and their families.

Last Will & Testament

A “last will and testament” is a legal document that goes into effect after death. In it, you explain and make clear how you want your assets, real property, and belongings to be handled after your death. You also generally name the person you wish to “execute” or administer your will. In your will, you name the heirs and beneficiaries to whom you wish to pass on specific assets, what those assets are, as well as when and how you want them passed on. For example, you can designate a specific amount in a savings account to be set aside to be passed on to a grandchild when he or she reaches the age of 18.

The assets in your estate can include everything you own, from homes, vehicles, bank accounts, investments, boats, jewelry, and more. You can also name a guardian to care for any minor children you may leave behind. You can also leave instructions for that guardian to manage any assets you leave behind for those children.

Without a will, your estate will go into probate to be handled by a court according to the laws of your state. The probate judge will have no instruction from you as to how you wanted your estate settled. This opens up the possibility of legal contests from family members or others that can eat up time and money spent in litigation. Even with a will, your estate must be probated but once your will is validated by the court, it becomes a much simpler task to settle your estate according to the instructions laid out in your will.

Trusts

Many types of trusts exist and are created for various purposes. One of the most common is known as a “living trust.” That is because, unlike a will, it is created and goes into effect while you are still alive. In a trust, you transfer your assets to a separate legal entity that holds these assets for your heirs and beneficiaries. The trust is managed by a trustee on behalf of these heirs and beneficiaries. You can appoint yourself to be the trustee to manage your own trust while you are alive as well as name successor trustees to distribute your assets after you are gone. In the trust you will name the assets and the people or groups to whom the various assets will pass upon your death.

The above is called a revocable trust. This means, as the trustee, you can change the trust at any time or even do away with it altogether. It is possible to have both a will and a trust because they can accomplish different purposes. The benefit of a trust is that it generally avoids the probate process. This, once again, saves time, money, and the stress of court proceedings.

As mentioned above, various types of trusts exist that can be set up to accomplish certain goals. These can include both revocable and irrevocable trusts, such as (but not limited to):

• Charitable trusts for the purpose of passing on assets to charities
• Asset protection trusts designed to protect your assets from future creditors
• Special needs trust created to protect disabled family members

Estate Plans Created for Your Specific Needs

The above is a broad overview of trusts vs. wills. Every estate is unique with every individual having unique needs and objectives. Wills and trusts are vital if you wish to ensure that what you have built over a lifetime is passed on properly and as smoothly as possible. It is important to remember that, without a will or estate plan, your assets will be distributed by a judge with no input from you.