Understanding the Difference Between Wills and Trusts: Tools for Shaping Your Legacy

by | Jun 15, 2024 | estate planning, legacy planning, trusts

Estate planning is an essential step for anyone who wants to ensure their assets are distributed according to their wishes after they pass away. While both wills and trusts are commonly used tools in estate planning, they serve distinct purposes and have different advantages and disadvantages. Understanding these differences can empower you to choose the right tool (or potentially a combination of both) for your unique situation.

Wills: A Roadmap for Post-Death Distribution

A will is a legal document that outlines your wishes for how your assets will be distributed after your death. It allows you to name an executor, who is responsible for carrying out the instructions in your will, such as paying your debts and distributing your remaining assets to your beneficiaries. Here are some key characteristics of wills:

Takes Effect Upon Death: A will has no legal effect until you pass away. During your lifetime, you can amend your will as needed to reflect changes in your circumstances or wishes.

Probate Process: When you die with a will, your estate may go through probate, a court process that oversees the validation of your will, the settlement of your debts, and the distribution of your assets to your beneficiaries. Probate can be time-consuming and public record. A will does not avoid probate.

Limited Asset Control: A will primarily addresses assets held solely in your name. Assets with designated beneficiaries, like jointly owned property with a right of survivorship or retirement accounts with named beneficiaries, typically bypass the will and transfer directly to the designated beneficiary.

Trusts: A Flexible Tool for Asset Management

A trust is a legal arrangement that transfers ownership of your assets (the trust property) to a trustee, who manages the assets for the benefit of named beneficiaries. There are various types of trusts, each with its own specific purpose and characteristics. Here’s a glimpse into the world of trusts:

Effective During Lifetime (Optional): Unlike wills, certain trusts, like revocable living trusts, can be created and funded during your lifetime. This allows you to transfer ownership of assets to the trust while retaining control and access to them during your lifetime.

Avoids Probate: Assets held within a properly established and funded trust generally avoid probate, saving your beneficiaries time and expense. The trust document dictates how the assets are managed and distributed, streamlining the process.

Greater Control and Flexibility: Trusts offer more flexibility in asset management and distribution compared to wills. You can set specific conditions for how the assets are used and even designate different beneficiaries to receive the assets at different times.

Choosing the Right Tool: Wills vs. Trusts

The decision of whether to use a will, a trust, or both depends on your specific needs and goals. Here’s a breakdown to help you navigate this choice:

Simple Estates: If you have a relatively simple estate with few assets and straightforward distribution wishes, a will may be sufficient.

Complex Estates: For those with significant assets, complex family dynamics, or a desire for more control over asset distribution, a trust can be a valuable tool.

Privacy Concerns: Probate is a public process, and the details of your will become part of the court record. A trust can offer more privacy as the trust document is typically not a matter of public record.

Incapacity Planning: A living trust can provide a mechanism for managing your assets if you become incapacitated while still alive. A will has no effect during your lifetime.

Beyond Wills and Trusts: Additional Estate Planning Tools

While wills and trusts are fundamental tools in estate planning, there are other strategies you can consider to create a comprehensive plan:

Beneficiary Designations: Many assets, such as retirement accounts, life insurance policies, and payable-on-death (POD) bank accounts, allow you to designate beneficiaries who will receive the assets directly upon your death. This bypasses probate and ensures a smooth transfer of ownership.

Power of Attorney: A power of attorney is a legal document that authorizes another person (your attorney-in-fact) to act on your behalf in financial matters. This can be especially useful if you become incapacitated and unable to manage your finances yourself. There are different types of powers of attorney, so it’s crucial to choose the one that best suits your needs.

Coordinating Your Estate Plan

These various tools work together to form a comprehensive estate plan. Here’s how you can ensure everything is coordinated effectively:

Review Regularly: Your estate plan should be reviewed and updated periodically to reflect changes in your life circumstances, such as marriage, divorce, births, or changes in asset ownership.

Communicate with Beneficiaries: Inform your beneficiaries about your estate plan, including the location of your will and other important documents. Discuss your wishes and expectations with them to avoid any confusion or surprises later.

Store Documents Securely: Keep your original will and other estate planning documents in a safe and secure location, but also ensure your executor knows where to find them. Consider using a safe deposit box or a secure online document storage service.

Seeking Professional Guidance

Estate planning can involve complex legal considerations. Consulting with an experienced attorney specializing in estate planning is highly recommended. They can assess your individual circumstances, discuss your goals, and advise you on the most appropriate combination of wills, trusts, and other estate planning tools to achieve your desired outcome.

Schedule an Initial Consultation at Galanti & Copenhaver

By understanding the differences between wills and trusts, you can make informed decisions about how to manage your assets and ensure your loved ones are taken care of after you’re gone. Taking the time to plan for your legacy is a gift to your family, providing them with clarity and peace of mind during a difficult time.

Don’t navigate the complexities of estate planning alone. Galanti & Copenhaver’s compassionate and experienced attorneys can guide you through every step of the process. Contact us today for a complimentary consultation to discuss your unique situation and explore how we can help you create a plan that safeguards your legacy and provides peace of mind for you and your loved ones.