Deciding when is a will or trust better is an important decision. Both provide you and your family with distinct advantages. Wills are great for setting up distribution of assets. They are also less expensive initially. On the other hand, trusts can provide more protection and control. This article will help you decide which one is better for you.
What is a Will?
A will is a legally binding document that allows you to assign ownership of your assets to other individuals and organizations. Your last wishes are detailed in the will, which also may include specifying who will take guardianship or custody of minor children and/or pets. It may also state who should manage any business interests, as well as specify funeral arrangements.
What is a Trust?
A trust is created when someone (the trustee) takes legal title to property for the benefit of a third party (beneficiary). Trusts can be used as an estate planning tool as it can help avoid probate, save on taxes and provide a way for global asset protection. A trust bypasses the judicial system and allows the trustee to manage assets without going through court. It also offers more privacy than a will.
What Are Common Reasons People Need a Trust?
Here is a list of reasons why a person may choose to have their assets in a trust:
- Estate planning. A trust can be used to manage and distribute assets upon the grantor’s death, avoiding probate and ensuring that assets are distributed according to the grantor’s wishes.
- Asset protection. A trust can provide protection for assets from creditors, lawsuits and other claims. (NOTE: Most trusts do not provide asset protection. Even so called “asset protection trusts” provide limited protection. Read “How to Choose Which Asset Protection Trust is Right for You” for more information.)
- Tax planning. A trust can be used to minimize gift and estate taxes and income taxes.
- Special needs planning. A trust can be set up to provide for the care and support of a beneficiary with special needs, without disqualifying them from government benefits.
- Managing assets for children or other beneficiaries. A trust can be used to manage assets for minor children or other beneficiaries who are unable to manage their own affairs. A minor child cannot own assets. If they receive an inheritance, that may need to go to a court-ordered conservatorship until they reach the age of adulthood. A trust can avoid this problem.
- Privacy. You can set up a trust to keep the beneficiaries and the assets in the trust private.
- Managing assets for charitable causes. A trust can be set up to manage assets for charitable causes and give tax benefits to the grantor.
- Business succession planning. A trust can be used to manage and transfer ownership of a family business. Otherwise, your business could be without a leader while it is tied up in probate court for months or longer. Many businesses simply fail when they go through probate. All the employees and customers simply leave with no one to stop it.
Identify How Difficult It May Be For Your Family to Recover After Your Death.
A trust can be helpful as it helps streamline the process of distributing your assets. Moreover, if you want absolute assurance that your beneficiaries receive their inheritance according to your wishes, a trust may be the best option. A will is more likely to be contested in court and take years before being finalized.
Is a Will or Trust Better For Protecting Unprepared Heirs?
When asking yourself is a will or trust better for your situation, consider if you want your heir to take control of assets immediately. A will allows an adult heir to take control of assets right away. But with a trust, you can decide when they gain access or can make decisions on their own. There is way more flexibility with a trust. Here are just some examples of how you can structure future trust distributions to your heirs:
- They can receive their inheritance in stages. For example, a third at age 25, another third at 30, and the remainder at 35.
- They can receive monthly allowances for their “support.” (I’m not a huge fan of this. Depending on how much money is involved, this is what can create a “trust fund baby.”)
- The trustee can give them money for their education or health needs.
- The trustee can give them discretionary payments based on guidelines you set forth in the trust document.
These are merely some examples. Talk to your estate plan attorney about the actual wording you want in your will or trust.
Conclusion – Is a Will or Trust Better?
It’s important to consult with a trust and estate attorney to determine if a trust is the right option for your specific needs and goals. Trusts can be complex. And different type of trusts have different features, benefits and drawbacks. So it’s important to understand the legal and financial implications of creating a trust before making a decision.
If you’re still wondering is a will or trust better for you, give us a call at 602-443-4888. We’re here to help.