What's the difference between a will and a trust?

When planning for the future of your family, there is no catch-all right or wrong answer as long as you have a plan in place. With that said, there are significant differences between what wills and trusts allow you to do, and how they impact your estate while you are here. Below are some basics you should know about each, as you begin to think about the future of your family.

What is a will?

A will is a legal document that instructs how you want your assets (financial and material) distributed after your death. In it, you can appoint your executor or personal representative, name your beneficiaries, designate guardians for your children, and leave specific instructions as to how and when your beneficiaries receive their inheritances.

What is a trust?

A trust is a legal entity, existing for the sole purpose of protecting the assets in your estate. Typically, trusts are recommended for people with significant assets, in part because they can be expensive to create and administer, often upwards of $5,000 to $10,000 or more, depending on complexity. You might still need a will for things like appointing a guardian for your children, but a trust will cover your estate’s finances and allow the details of your finances to remain private, as a trust passes outside of probate.

While a will determines how your assets will be distributed after you die, a trust becomes the legal owner of your assets the moment the trust is created. There are numerous types of trusts out there, but an irrevocable trust is most relevant in the world of personal estate planning. As the name implies, an irrevocable trust cannot be revoked once it is created; in other words, if you put property in the trust, you cannot take it out. This is ideal for people who want to avoid probate and keep the details of their estates private. (Wills are public record.) An irrevocable trust also allows you to make more detailed provisions regarding the use of your estate, as well as offers you protection from creditors or potential litigants.

For many people, however, the number one reason for creating an irrevocable trust is the tax advantage. If you have a trust, the first $11.4 million in assets ($22.4 million for a married couple) are not subject to estate taxes. You can also gift an additional $11.4/$22.4 million tax free. If your estate is large, this setup creates an attractive tax savings.

Probate

Probate matters can get dicey when you don’t have a will. It can take much longer to settle an estate and cost more money, especially if litigation becomes necessary. It can create strife among your loved ones, each of whom may have their own ideas about what your intentions were. In legal terms, dying without a will is called “dying intestate.” When you die intestate, your state’s intestacy succession laws determine who will inherit your assets. Let’s say, for example, you are unmarried but live with your longtime partner who has a child you love dearly, your parents have passed away, and you have no children of your own. However, you have three siblings, and you’re estranged from all of them. Without a will, in some states your estate would pass to the three of your siblings in equal shares, leaving your longtime partner and their child with no legal right to your assets. Having a valid will in place would ensure that your partner and their child could inherit the whole of your estate.

After you create a Trust, you then need to fund it by transferring assets to it, making the Trust the owner. This does make Trusts a little more complex to set up, but note that Trusts have one major benefit over Wills. They’re often used to minimize or avoid probate entirely, which is a huge plus for some people. This alone could more than justify the additional complexity of setting up a Trust.

When deciding on your options for estate planning, it is helpful to think about the value of your assets, whether you want access to them while you are living, if you want to avoid probate, and how you would like to designate their distribution once activated. To discuss what might be the best approach for your family and estate, send me a message, or reach out to us at https://hlawkc.com/