Estate planning is a crucial step in ensuring that your assets are managed and distributed according to your wishes. Two common tools for estate planning are wills and trusts. In this article, we'll explore the key differences between these two important legal documents to help you understand which one may be more appropriate for your specific needs.
Wills:
Purpose: A will, also known as a last will and testament, is a legal document that outlines your wishes for the distribution of your assets after your death. It serves as a fundamental component of your estate plan.
Asset Distribution: A will specifies how your assets should be distributed among your beneficiaries, including family members, friends, or charitable organizations. It allows you to designate who receives what, including specific bequests (e.g., "I leave my car to my niece, Sarah").
Probate: Wills typically go through the probate process, a legal procedure that validates the will, pays off debts and taxes, and ensures assets are distributed according to the will's instructions. Probate is a public process, and it may involve court supervision.
Guardianship: You can use a will to designate a legal guardian for your minor children, ensuring their care is entrusted to someone you trust.
Revocable and Amendable: You can revise and update your will as your circumstances change, such as after significant life events like marriage, divorce, or the birth of children.
Public Record: Wills become part of the public record during the probate process, making their contents accessible to anyone interested.
Trusts:
Purpose: A trust is a legal arrangement that allows you to transfer your assets into a separate entity (the trust) to be managed and distributed according to specific instructions. Trusts can serve various purposes, including avoiding probate, providing for minor children, and estate tax planning.
Asset Management: With a trust, you appoint a trustee who manages and administers the trust's assets according to your instructions. You can also be the trustee while you are alive.
Probate Avoidance: Assets placed in a trust typically avoid probate, which means they can be distributed to beneficiaries more quickly and privately.
Privacy: Trusts provide a higher level of privacy compared to wills since they are not part of the public record. The details of the trust, including asset distribution, remain private.
Flexibility: Trusts offer greater flexibility in terms of asset management. You can set specific conditions for asset distribution, such as when beneficiaries reach a certain age or achieve specific milestones.
Living Trusts: Our trusts, known as living trusts or revocable trusts, allow you to maintain control of your assets during your lifetime, and you can make changes or revoke the trust at any time.