Estate planning allows people to prepare in advance and helps ensure their wishes are carried out after passing in the easiest and most tax-efficient way possible. There are many estate planning options available, and the process of creating a plan can be overwhelming, especially to those new to the whole process.
But what are those options, and which one does your estate plan need?
Below, we discuss in detail what wills and trusts are, so it’s easier for you to make crucial decisions in securing your legacy and the financial security of your loved ones.
What Is a Will?
A will, commonly referred to as a Last Will and Testament, is a legal document stating your intentions for distributing your assets after you pass. Anyone over the age of 18 and who has any possessions should have a will. In its absence, your property, savings and investments will be distributed according to the courts and state laws.
Your spouse, children, parents or immediate relatives will automatically become your beneficiaries if you pass without a will. However, if you have no known family, your assets will most likely go to the state since the law does not permit wealth distributions to a friend, charity or other non-related entities.
For this reason, working with an estate planning attorney is crucial to help ensure your wealth is distributed according to your wishes.
Limitations of a Will
While a will is essential to many estate plans, it’s important to understand what a will can’t do. Knowing these limitations helps you make more informed decisions when weighing wills and trusts:
- Does Not Avoid Probate: A will must go through the probate process, which can be time-consuming, public, and expensive. Your assets may be tied up in court before being distributed to your beneficiaries.
- No Asset Protection: Assets passed through a will are generally not shielded from liabilities like creditors, lawsuits, or divorce. This can leave your loved ones’ inheritance vulnerable.
- Takes Effect After Death: A will cannot help manage your affairs if you become incapacitated due to illness or injury.
- Limited Control Over Inheritance Terms: Assets in a will are distributed in a lump sum. If you want to set conditions, such as giving a beneficiary control at a certain age, a trust may be more appropriate.
Relying solely on a will can leave gaps in planning for individuals or families with more complex needs. Trust planning can help ensure one’s wishes are honored both during life and after death.
What Is a Trust?
A trust is an arrangement that constitutes three parties: the Grantor, the Trustee and the Beneficiary. A Trust is created when the estate owner or Grantor transfers the financial benefit of property to a third party while keeping legal control and ownership by appointing themselves or someone else as the Trustee. Of course, separate people can hold each of these roles, but in the case of revocable living trusts, typically one person initially holds all three.
Types of Trusts
Not all trusts perform the same function. When creating your estate plan, choose a type of trust that meets your goals.
- Irrevocable Trust: This trust cannot be altered. It can be used to protect your assets and reduce estate taxes.
- Revocable Living Trust: As the name suggests, this trust gives you control over your assets while you’re still living, allowing you to make changes at any time. It helps you avoid probate in life and death while keeping your affairs private.
- Special Needs Trust: Designed for beneficiaries with disabilities, this trust preserves their eligibility for government benefits like Medicaid or Supplemental Security Income while providing financial support.
Wills vs. Trusts: Knowing the Difference
Wills and trusts are often confused since the two have the same primary function – to allow an individual to name the people or organizations that will receive their assets. However, their main difference is how and when they take effect. Trusts are effective immediately upon signing the necessary documents, while your will doesn’t go into effect until after your death.
Another difference between the two is that wills require probate, while trusts typically don’t. Property and assets in a will must go through probate before they are transferred to beneficiaries. On the other hand, the assets placed in a trust can bypass probate.
Then, there’s also the matter of privacy between the two arrangements. Since wills have to go through probate, the documents become public records when they are submitted to the court for processing. However, trusts stay private and are only known to those involved.
When discussing wills and trusts, it’s essential to know that they have unique benefits that allow you to manage your wealth according to your liking. It’s helpful to seek the assistance of an estate planning attorney to help assess your situation and determine your goals at the very beginning of the process, so you can determine the best solution that suits your objectives.
A will may be sufficient if your estate plan is simple and your assets are limited. In this case, you may focus on naming beneficiaries and an executor. However, a trust may be the better option to avoid probate, protect assets, or plan for incapacity. Trusts also offer greater control over how your assets are distributed.
Why You Need Both a Will and a Trust
Most estate planning involves both a will and a trust. Both allow you to have a detailed plan that guarantees an easy and immediate wealth distribution under specified conditions. Wills and trusts complement each other and are essential elements in a comprehensive estate plan.
Consulting an Estate Planning Attorney
The best way to set up an estate plan is with experienced guidance. A skilled estate planning attorney can customize an estate plan that protects your assets. This helps ensure:
- Your assets are distributed according to your wishes.
- Your loved ones are supported when the time comes.
- Your estate plan reflects your long-term goals.
Legal guidance helps ensure nothing is overlooked, whether your needs are simple or complex.
The Lawyers at Wiles Law Firm Is Here To Help
Managing and preparing for your estate is a task that requires knowledgeable input. Our estate planning attorneys here at Wiles Law can help make this complex process a lot easier for you.
We are a full-service estate planning law firm committed to helping families preserve their legacy and protect their assets through specialized wealth preservation strategies.
An estate planning attorney can help make the necessary arrangements and help create a complete plan tailored to your needs and goals.
Contact Wiles Law today to schedule a consultation about your estate planning strategy.