Wills vs. Trusts

Regarding estate planning, two main methods are commonly used: wills and trusts. While each helps manage the distribution of your assets to your beneficiaries, they are individual legal instruments that have their own unique features and advantages to consider.

In this blog post, we’ll explore the key differences between wills and trusts, helping you make the most informed decision about which option is best suited to your individual needs.

What Is a Will?

A will (also known as a last will) is a legal document that outlines your final wishes surrounding the distribution of your assets and the care of your dependents after you die. With this document, you’ll appoint an executor who ensures your wishes are satisfied according to your instructions.

What Is a Trust?

A trust, on the other hand, is a legal entity that holds and manages your assets for your designated beneficiaries. Trusts involve three key roles:

• The Grantor: The person who creates the trust.
• The Trustee: The person who manages the trust.
• The Beneficiaries: Those who benefit from the trust assets.

Terminology Associated With Wills & Trusts

Before we explore the key differences between a will and a trust, it’s important to have a basic understanding of the terminology used while discussing each. Below are a few of the most common terms associated with wills and trusts:

• Probate: The legal process of validating a will and distributing assets.
• Executor: The person named in a will to carry out the decedent’s wishes.
• Revocable Living Trust: A trust that can be altered or revoked during the grantor’s lifetime.
• Irrevocable Trust: A trust that cannot be changed or revoked without the consent of the beneficiaries.
• Beneficiary: An individual or entity that receives assets from a will or trust.
• Estate: The total value of a person’s assets at the time of their death.
• Inheritance Tax: A tax imposed on the assets inherited by beneficiaries.
• Living Will: A legal document that outlines end-of-life medical decisions.
• Pour-Over Will: A will that directs assets into an existing trust upon the grantor’s death.

The Differences Between Wills & Trusts

While both wills and trusts facilitate asset distribution, there are key differences in the manner in which this process is handled depending on which type of document you have in place:

• Probate: Wills typically go through probate, a court-supervised process that can be time-consuming and expensive. Trusts, however, often avoid probate, ensuring a quicker and more private distribution of assets.
• Privacy: During probate, it will become a matter of public record, meaning anyone can access the details surrounding your estate. By contrast, trusts remain private, keeping your financial matters confidential.
• Flexibility: Wills are flexible documents that allow you to name guardians for your minor children and specify funeral arrangements, while trusts primarily focus on financial asset management and distribution.
• Control: A will becomes active only after you die, while a trust can provide ongoing management and control of your assets both while you’re alive and after you pass.
• Planning: Trusts can include specifications for how to manage assets in the event that you become incapacitated, offering more comprehensive estate planning than wills provide.

Different Types of Wills & Trusts

Within each category, there are several different options to choose from when planning your estate:

Types of Wills

• Simple Will: This is the most straightforward type of will, outlining how your assets should be distributed following your death.
• Testamentary Trust Will: This type of will includes trusts that only come into existence after you pass and are often used when minor beneficiaries are a concern.
• Living Will (Advance Healthcare Directive): These wills provide guidance for your medical treatment preferences in case you are unable to communicate them.

Types of Trusts

• Revocable Living Trust: As aforementioned, revocable living trusts allow you to maintain control over your assets during your lifetime and specify how they should be distributed after your death.
• Irrevocable Trust: These trusts offer asset protection and tax benefits, but they cannot be changed without the express consent of your designated beneficiaries.
• Special Needs Trust: If you have a loved one with disabilities, this trust will ensure their financial well-being-without placing their eligibility for government benefits in jeopardy
• Charitable Remainder Trust: If you plan to donate your remaining assets to charity, this trust allows you to allot a portion of your estate to your beneficiaries while donating the rest to a charitable organization.
• Life Insurance Trust: If you own life insurance policies, a life insurance trust allows you to exclude the proceeds of such policies for estate tax purposes, which can be helpful to your surviving loved ones.

The Benefits of Wills & Trusts

Wills

There are many reasons why one would choose to establish a will rather than a trust, including:

• Wills are often simpler and more affordable
• Wills are easier to establish and amend
• Wills are better suited for simple estate plans

Trusts

Conversely, the following are just a few of the benefits of establishing a trust rather than a will:

• Trusts can help you avoid the probate process
• Trusts offer greater privacy
• Trusts allow for asset management if you become incapacitated
• Trusts can help protect loved ones with special needs
• Trusts offer greater tax planning opportunities

Which Option Is Best for Your Needs?

The choice between establishing a will and a trust depends on many factors. Here are some key considerations to keep in mind when deciding which is right for your individual needs:

• Complexity: If you have a smaller estate with few assets and beneficiaries, a will may be the better option. For more complex estates with many assets and beneficiaries, a trust may provide greater flexibility and control.
• Privacy: If privacy is a top concern and you prefer to keep your financial matters confidential, trust is the better choice for its enhanced privacy protection.
• Incapacitation: If you’re concerned about managing your assets in the event that you become incapacitated, a trust can provide the necessary protections and specifications for such cases.
• Cost: Wills are generally less expensive to create than trusts; however, it’s important to factor in the cost of the probate process as this can often outweigh the initial savings of choosing a will.
• Taxes: For larger estates, a trust may be the better choice due to its enhanced tax benefits and streamlined wealth transfer process.

Establish Your Will or Trust With Matheson Law Firm

If you’re struggling to decide between a will or a trust, it’s important to consult with an estate planning attorney to assess your individual circumstances. At Matheson Law Firm, our team can help you determine whether a will, a trust, or a combination of both is the best strategy for protecting your legacy and ensuring your wishes are honored.

If you’re beginning to plan your estate, don’t do it without the legal team you need to navigate the process effectively. Contact Matheson Law Firm at (704) 439-1350 to learn more about our estate planning solutions today!