Sometimes estate planning is as simple as creating a will and incapacity plan. Other times, it’s obvious that you need something more complex – like a living trust. But what about those times when your estate is complex enough that you’re just not sure which type of estate planning tools you should use? How are you supposed to judge whether you need will or trust to meet your needs? When it comes to the question of wills vs. trusts, it’s important to understand the pros and cons of each so that you can make the absolute best decision for your plan.
The Will versus the Trust: Overview
Most people have at least some basic idea about what a will is supposed to accomplish – even though more than half of American adults haven’t bothered to create one. The will is a legal document that enables the person who makes it to provide instructions about how his assets are to be distributed after his death. That person, known as the testator, can change or revoke the will at any time prior to his death, and can use the document to not only name heirs but provide guardians for minor children.
The trust is a more complex arrangement, but is also primarily used as a means for transferring wealth from one person to another. The trust, however, involves assets being held by one person for the benefit of another party. Basically, the person who creates the trust (the grantor) transfers ownership of those assets to a trusted second party (the trustee), who then holds and protects those assets for the eventual benefit of a third party – known as the beneficiary. With revocable trusts, you can be trustee and even beneficiary. Irrevocable trusts lack that flexibility, but can provide even greater benefits for protecting the assets owned by the trust.
Pros and Cons of the Will
Wills are legally binding, and can be a useful way to provide for the distribution of assets when you die. However, they are not always the best option available in every situation. Wills have many benefits, but some drawbacks as well. For example:
- Wills can be created at a relatively low cost. Moreover, they are relatively easy to change later in life, and can even be completely revoked if you need to make dramatic alterations. They’re far easier to revoke than most trusts.
- Wills are also legally-enforceable, and the process of settling them is overseen by a court. That can provide an additional layer of protection to ensure that your wishes are carried out.
- On the other hand, wills provide no protection from probate. Unless your estate is small enough to avoid probate altogether, you’ll need the probate process to settle your estate.
- Wills are also a less than effective way to achieve flexibility in your distribution efforts. For example, if you want your heir to receive distributions that are released periodically over several years, the will is not the most effective way to address that situation.
- Wills also provide no protection from estate taxes, and many of them are open to legal challenge in the courts.
Pros and Cons of the Living Trust
The living trust is an option that is becoming more popular with each passing year, as more Americans find out about its many great benefits. It can offer a tremendous number of advantages, including greater flexibility than you can achieve with a Last Will and Testament. It is not, however, always the best option for everyone, since it too has its own pros and cons:
- With a trust, you can maintain control over how your assets are distributed after your death. The trustee that you name will take care of those distributions in accordance with the instructions you provide in your trust terms.
- This enables you to achieve greater flexibility, distributing assets over time if you wish – or simply dictating that all assets be released after debts are settled.
- There are different types of trusts, so you can deal with various specialized needs. Special needs trusts can be used to care for disabled heirs who cannot afford to have their government benefits disrupted. Pet trusts can provide for your animal companions. Irrevocable trusts can be used to minimize estate tax liability, or to benefit your favorite charitable endeavors.
- On the other hand, trusts have some inherent drawbacks as well. They can take longer to create and execute – and they generally cost more. Furthermore, irrevocable trusts cannot be changed or terminated once they’re created, so that means that those assets are out of your reach forever. A revocable trust can be revoked at will, but its revocable nature makes it an inferior vehicle for gaining estate tax and creditor protections for assets.
- Trusts must also be established and managed properly if they are to be useful for your needs. Mistakes can be costly, especially in instances where you fail to properly fund your trust.
Which is Right for You?
As you can see, both the will and the trust have many benefits to offer – as well as some areas of weakness. That can complicate the decision about which one to use for your unique needs. That’s why it’s so critical to consult with a competent estate planning attorney before making any strategic decisions. He or she can help to review your individual circumstances and help you determine which tools and strategies will best protect your estate interests – or whether you might even benefit from both a will and a trust.
At the Law Offices of Mary A. Miller, P.C., our estate planning experts can work with you to review your options, recommend solutions based on your unique needs, and develop the strategy you need to properly protect assets and prepare your financial legacy. We’ll help you get the right plan in place to ensure that your interests and your family are secured so that you can enjoy the peace of mind that you deserve. If you’re interested in learning more about wills vs. trusts and how these powerful tools can benefit you both now and in the future, contact us online or give us a call at (914) 939-6565 today.