We are all going to die someday, but not everyone is prepared for this certainty. This is because many people refuse to discuss what will happen after their death.
Do you have a plan in place? Most people do not. Statistics show that only 24% of adults in the United States currently have a valid will.
Why is this? Why do people forgo estate planning? A lot of people think only the wealthy need estate planning. Some people have no clue about where to start.
The truth is that everyone needs a plan. Having one protects your assets. It ensures your wishes are known. It allows you to choose a trustworthy person who can make decisions on your behalf.
Two of the most common estate planning tools are wills and trusts. Although they can serve similar purposes, they work differently and offer different benefits.
Choosing between a will and a trust depends on factors such as the size and complexity of your estate, how you want your assets distributed, and whether avoiding probate is important to you. If you are considering estate planning, here is what you need to know.
What Is a Will?
A will is a legal document that explains how you want certain assets distributed after your death. It can also name an executor to handle your estate. If you are a parent of minor children, a will can identify a person you would like to serve as guardian as well.
A will generally takes effect after death and typically must go through probate. Probate refers to the court-supervised process of validating a deceased person’s will and administering their estate.
When Might a Will Be the Better Choice?
A will may be appropriate for someone with a relatively straightforward estate and limited assets.
For example, a person may use a will to identify beneficiaries, nominate a guardian for minor children, and name an executor to administer the estate.
A will can also be less complicated to establish than a trust. However, simplicity does not necessarily mean that a will is sufficient for every estate.
When Might a Trust Make Sense?
A trust may be useful for people who want greater control over how and when beneficiaries receive their inheritance.
For example, instead of leaving a large inheritance to a child outright at age 18, a trust can establish conditions for distributing the assets or allow a trustee to manage the property until the beneficiary reaches a specified age.
A trust may also be useful for people who want to plan for incapacity or avoid probate for assets that have been properly transferred to the trust.
Can You Have Both a Will and a Trust?
Yes. In fact, many estate plans use both.
Someone with a revocable living trust may also have a pour-over will. This type of will generally directs certain assets that were not transferred to the trust during the person’s lifetime into the trust after death, subject to applicable probate procedures.
A pour-over will can also address matters that a trust does not, such as nominating a guardian for minor children.
What Is a Trust?
A trust is a legal arrangement in which property is held and managed by a trustee for the benefit of one or more beneficiaries. There are several types of trusts, but a revocable living trust is the most common.
In a revocable living trust, the person who creates the trust, known as the grantor or settlor, will generally serve as trustee and maintain control over the assets during their lifetime. Assets properly transferred to a trust generally can pass to beneficiaries without going through probate. The trust document can also identify an alternate person who will manage the trust if the original trustee becomes incapacitated or dies.
However, different types of trusts serve different purposes. A revocable living trust is not the right tool for every estate.
Trusts vs. Wills: Key Differences
One of the primary differences between a will and a trust is when the document takes effect. A will generally takes effect after death, while a trust can take effect during the creator’s lifetime. A will typically must go through probate, which is the court-supervised process of validating the will, paying debts and taxes, and distributing assets. By contrast, assets that have been properly transferred to a trust generally can pass to beneficiaries without going through probate.
Trusts and wills also differ in how they address incapacity. A will primarily provides instructions for what should happen after someone dies, while a trust can provide a mechanism for managing certain assets if the person who created the trust becomes incapacitated. For example, a successor trustee can take over management of trust assets if the original trustee can no longer manage them.
Wills and trusts also differ in how they can be used for minor children. A will can be used to nominate a guardian for minor children, while a trust can provide instructions for managing assets inherited by children. An example would be distributing assets over time rather than giving a child an inheritance outright.
Cost and complexity can also differ. A will is generally simpler to establish, while creating and maintaining a trust can require more planning and ongoing attention, including properly transferring assets into the trust. However, a trust may provide greater control over the management and distribution of assets and may reduce the need for probate.
Privacy is another consideration. Probate proceedings can become part of the public record, while trust administration is generally more private.
When Might a Will Be the Better Choice?
A will may be appropriate for someone with a relatively straightforward estate and limited assets. For example, a person may use a will to identify beneficiaries, nominate a guardian for minor children, and name an executor to administer the estate. A will can also be less complicated to establish than a trust.
When Might a Trust Make Sense?
A trust may be useful for people who want greater control over how and when beneficiaries receive their inheritance.
For example, instead of leaving a large inheritance to a child outright at age 18, a trust can establish conditions for distributing the assets or allow a trustee to manage the property until the beneficiary reaches a specified age.
A trust may also be useful for people who want to plan for incapacity or avoid probate for assets that have been properly transferred to the trust.
Can You Have Both a Will and a Trust?
Yes, this may be a good idea for complicated estates. In fact, many estate plans use both.
Someone with a revocable living trust may also have a pour-over will. This type of will generally directs certain assets that were not transferred to the trust during the person’s lifetime into the trust after death, subject to applicable probate procedures.
Contact Us Today
Estate planning is not an easy task. Should you get a trust? A will? Or maybe both? Ultimately, the choice between a will and a trust depends on various factors.
When should you start the estate planning process? The right time is now. The Law Office of Philip M. Flanigan, P.C. can help. I have helped families throughout California set up and settle their estate plans for the past three decades. Schedule a consultation today by filling out the online form or calling (559) 517-3948.