Deciding how to distribute your wealth and belongings after you’re gone is a difficult process. Understanding the difference between a will and trust can help you decide which of these two estate planning documents is right for you.
Key Questions to Ask When Choosing Between Writing a Will or Establishing a Trust
When it comes to deciding between writing a will or creating a trust, there are several important questions you should ask yourself. For instance, do you want the document you create to be revocable or irrevocable? Do you need special planning for assets such as businesses and retirement accounts? Are there any tax-related benefits to setting up a trust rather than a will? What provisions should you include in either document in order to ensure that your assets pass on according to your wishes? Answering these key questions can help ensure that the estate plan you choose is the best fit for your individual goals.
Here is a cheat sheet with some basic questions to help you decide whether a will or trust makes sense for you.
What is a Will?
A will is a legal document that outlines how your estate should be handled after you pass away. It can reference what property and personal items, called “assets”, should be distributed to family members, friends or charities. Your will also specifies your wishes regarding who should be the guardian to any minor children you have. Wills typically require the signature of two witnesses and a notary. You should store it in a safe place. That will ensure that your nominated personal representative can find it and carry out all of your wishes upon your death.
What is a Trust?
A trust is a legal document that typically holds assets and property for a named beneficiary. Then when that beneficiary dies, the assets get distributed to other named beneficiaries. You can be more detailed in a trust than you can in a will. For example, you can spell out that your beneficiary (or beneficiaries) do not immediately get their inheritance after you die. This can be important because people who get financial windfalls tend to make bad decisions with the money. (I wrote a book about that.) Instead, a trust allows you to specify how, when, and under what circumstances your beneficiary receives distributions.
With a trust, you can also specify how the trustee directs and manages your money and property during your lifetime and after death. Plus, you can also use a trust to provide ongoing financial support for people such as children or disabled beneficiaries, as well as for tax-related purposes.
Advantages and Disadvantages of Making a Will vs. Creating a Trust
Wills and trusts both have their own unique advantages and disadvantages. There are many situations in which a will may make sense. For example, you simply want to specify who receives your money and property (assets) upon your death. Wills are also relatively simple and easy to create, compared to trusts. On the other hand, trusts may be more suitable for those who need ongoing financial support for named beneficiaries or those needing assistance managing their estate. Trusts can provide powerful tax benefits and protections against creditors. But a trust can also be more expensive and complicated to set up than wills. On the other hand, a trust can save money later by avoiding probate.
How to Decide Whether a Will or Trust is Right for You
Deciding whether to include a will or trust in your estate plan depends upon your individual needs and goals. If you are looking for a simple solution to pass assets onto family members, a will may be the best option for you. However, if you have more complex requirements such as protecting assets from creditors and providing ongoing financial support for family members, a trust may be the better choice. Ultimately, it is advisable to discuss your plans with an estate planning attorney to determine what type of document is most appropriate for your unique situation.
Here are ten questions to help you decide whether a will or trust is right for you:
- Do you care about anyone? If you don’t have anyone in your life that you care about, then screw it. You probably don’t need a will. Let the government get involved and settle your affairs. But if you DO care about even one person (even just a little), then you should at least have a will. A will saves those you leave behind a lot of time, money, and stress.
- Do you have any minor heirs? A minor is someone less than 18 years of age in most states. A minor cannot own or inherit anything. Someone would need to go to court to get permission to hold their inheritance until they become an adult. You can protect your minor heirs from probate court by having a trust that holds their inheritance until they are adult.
- Do you have irresponsible heirs? Many people mismanage their inheritance. They tend to spend their inheritances freely. Then they later regret their decisions. If you want to give them a little time to mature, use a trust. The trust can provide money for them in an emergency. But otherwise, it holds the money until they are more mature.
- Do any heirs have addictions? f any of your heirs have addiction issues, don’t give their money to them outright. You need to hold the money back in trust. Otherwise, they could literally kill themselves by going on a binge. Use a trust with special language.
- Do you have an heir on public benefits? If you have a heir who is on public benefits, their inheritance could disqualify them from the benefits. Then after the money is used up, they will just end up going back on public benefits. Instead of that, your trust can include special language. The trust can still help the person, but in a way that does not jeopardize their benefits.
- Do you have an heir with creditors? If you have a loved one who has creditor problems, then their inheritance could simply end up paying the creditors. Instead of that, use a trust that has a “Spendthrift Clause.”
- Do you have an heir in an unstable marriage? If you have an heir who is in a bad marriage, or maybe getting a divorce, that person may want their money held back. Yes, technically an inheritance is not subject to division in a marriage. But money can quickly get commingled. It’s safer to use a trust.
- Do you want to disinherit anyone? If you want to disinherit someone, it is probably better to use a trust. Otherwise, a will goes through the probate process. That person you want to disinherit needs to be notified. They can object. And it can cause a big mess. Use a trust.
- Do you own a business? A business needs someone actively running it. It can’t wait for months while a court decides who should be in charge. Use a trust if you own a business.
- Do you want to make life easier for your loved ones? Setting up a trust takes more work up front. But it saves a lot of headache later. If you want to save your loved ones time, money and frustration, get a revocable living trust.
Conclusion
Put simply, both a will and trust say who gets what when you die. But a will goes through probate and a properly funded, properly written trust can avoid probate.
If you want to learn more about wills and trusts, give us a call at 602-443-4888. Or send us a message using our convenient CONTACT FORM. We’re here to help.
