When Should You Opt for a Will Over a Trust?

by | Jun 22, 2024 | estate planning, legacy planning, Trust Administration, trusts

Estate planning is an act of foresight and love. It allows you to ensure your assets are distributed according to your wishes after you pass away, protecting your loved ones and safeguarding your legacy. While both wills and trusts are commonly used tools, they serve distinct purposes and offer different advantages. Understanding these distinctions empowers you to choose the right tool (or potentially a combination of both) for your specific situation.

Wills: A Straightforward Approach for Streamlined Distribution

A will is a legal document that outlines your wishes for asset distribution after your death. It allows you to:

Name an Executor: The executor is a trusted individual responsible for carrying out the instructions in your will, such as paying your debts and distributing your remaining assets to your beneficiaries. Choosing a responsible and reliable executor is crucial for ensuring the smooth execution of your wishes.

Designate Beneficiaries: Clearly specify who will inherit your assets. This can include specific bequests of personal belongings, real estate, or financial accounts to named individuals or charities.

Appoint Guardians: If you have minor children, you can designate guardians in your will to care for them after your passing. This ensures the well-being of your children is prioritized in the event of your absence.

Here’s what makes a will a suitable choice for some:

Simple Estates: If you have a relatively straightforward estate with easily identifiable assets and a clear distribution plan, a will may be sufficient. This is often the case for younger individuals or those with limited assets. A well-drafted will can ensure your assets are distributed efficiently and according to your wishes.

Cost-Effectiveness: Creating a will is generally less expensive compared to establishing a trust. The cost can vary depending on the complexity of your estate and the attorney’s fees, but it typically involves a one-time fee for drafting the document.

Easy Updates: Wills can be easily amended throughout your lifetime to reflect changes in your circumstances or wishes. This flexibility is advantageous as your life evolves and your family dynamics may change. You can add or remove beneficiaries, adjust the distribution of assets, or appoint a different executor if necessary.

Trusts: Enhanced Control and Avoiding Probate

A trust is a legal arrangement that transfers ownership of your assets to a trustee, who manages them for the benefit of named beneficiaries. There are various types of trusts, each offering unique advantages:

Living Trusts: Living trusts can be created during your lifetime and can hold a variety of assets, including real estate, investments, and bank accounts. You can retain control of the assets during your lifetime, and designate how they are managed and distributed upon your death or incapacitation.

Testamentary Trusts: These trusts are created within your will and come into effect upon your passing. They can be used to manage assets for specific purposes, such as providing for a minor child until they reach a certain age.

Irrevocable Trusts: These trusts involve giving up control of the assets you transfer to the trust. However, they can offer tax benefits and may protect assets from creditors.

Here’s why trusts can be a valuable tool in estate planning:

Avoids Probate: Assets held within a properly established and funded trust generally avoid probate, a court process that oversees the validation of your will and the distribution of your assets. This can save your beneficiaries time, expense, and the potential for public disclosure of your financial details. Probate can be a lengthy process, and a trust helps streamline the distribution of your assets.

Greater Control and Flexibility: Trusts offer more control over 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. For instance, you can create a trust that provides income for your spouse for their lifetime and then distributes the remaining assets to your children upon their passing.

Incapacity Planning: A living trust can provide a mechanism for managing your assets if you become incapacitated while still alive. This ensures your assets are managed according to your wishes, even if you are unable to make decisions for yourself. A will has no effect during your lifetime.

When a Will May Be the Better Choice

While trusts offer significant benefits, there are situations where a will may be the preferred option:

Limited Assets: If your estate primarily consists of easily transferable assets like bank accounts or investments, and you have a simple distribution plan, a will may be sufficient to achieve your goals.

Future Growth Potential: For younger individuals whose estate is likely to grow over time, a will allows for easy updates to reflect future acquisitions. As you accumulate more assets, you can revise your will to ensure it reflects your evolving needs and financial situation. Trusts, on the other hand, can be more complex to modify.

Cost Considerations: If you’re budget-conscious, creating a will is typically more cost-effective than establishing a trust. The ongoing management fees associated with some trusts can also add to the expense.

When a Trust May Be More Advantageous

There are situations where a trust can be a highly beneficial tool for estate planning:

Complex Estates: For individuals with significant assets, including real estate, investments, or business interests, a trust can offer greater control and flexibility in asset management and distribution. A well-structured trust can minimize legal complications and ensure your wishes are carried out efficiently.

Probate Avoidance: If your estate has over the probate exemption, the gross value of the overall estate is over a certain threshold, a well-funded trust will avoid the lengthy court supervised process and high expense to settle the estate through the court system.

Blended Families: If you have a blended family or complex family dynamics, a trust can be used to ensure that assets are distributed according to your specific wishes. You can outline provisions that protect the inheritance of your children from a previous marriage or ensure your spouse is cared for during their lifetime.

Incapacity Planning: As mentioned previously, a living trust can be a valuable tool for incapacity planning. It allows you to designate a successor trustee who can manage your assets if you become unable to do so yourself. This can provide peace of mind knowing your financial affairs will be handled according to your wishes.

Asset Protection: In some cases, irrevocable trusts can offer some protection from creditors. However, it’s important to consult with an attorney to understand the specific legal implications in your state.

Combining Wills and Trusts for a Comprehensive Plan

In some situations, utilizing both a will and a trust can be the most effective strategy for estate planning. Here’s how they can work together:

Will Captures Non-Trust Assets: A will can be used to address assets that are not included in your trust, such as those with designated beneficiaries that automatically transfer upon your death (e.g., retirement accounts). The will can also name an executor to handle any probate-related matters.

Trust Provides Flexibility and Control: A trust can offer the benefits mentioned above, such as avoiding probate, managing assets for specific purposes, and planning for incapacity.

Schedule a Consultation at Galanti & Copenhaver

By understanding the distinctions between wills and trusts, you can make informed decisions about your estate plan. Contact Galanti & Copenhaver today for an initial consultation.