There are people who make assumptions about estate planning documents. One of them is the notion that wills and trusts are pretty much the same thing. The idea is that a trust is just a fancy will that costs more money to create, but there is really no significant difference.
In fact, there are very significant differences between wills and trusts, and there are different types of wills and trusts. Let’s look at some of the facts so that you can go forward in a fully informed manner.
Last Wills for Asset Transfers
A last will or last will and testament is the will that people are most familiar with. You can state your final wishes regarding the way that you want your personal property distributed in a will.
If you pass away while you are in direct possession of your property and you rely on a will to distribute that property, your will would be admitted to probate; and the probate court would supervise the administration of the estate.
Many people assume that assets can be distributed quickly and easily after your passing if you use a will. But the probate process is rather time-consuming, and the heirs do not receive their inheritances while the process is underway.
An ordinary will also provides the people that are named in the will with lump sum inheritances. There would be nothing stopping them from spending the money far too quickly, and the inheritances would be fair game if there were any legal judgments against the inheritors.
A last will can suffice when very simple circumstances exist if you are not concerned about the probate process. However, trusts can provide a host of benefits that you would not get if you use a last will.
The trust that is useful for the widest range of people is the revocable living trust. As the name would indicate, you can revoke or the dissolve this type of trust so you don’t have to worry about losing control of the assets. Plus, while you are alive and well, you can act as the trustee and administer the trust.
In the trust declaration, you would name a successor trustee to handle the trust administration tasks when you are no longer capable of doing so. The successor trustee would administer the trust after your death, but you could also empower the trustee to administer the trust if you become incapacitated. This is a significant benefit because many seniors do become unable to handle their own finances eventually.
You can also provide protections for the inheritors that would not be possible if you use a last will to facilitate the distribution of your property. Though the assets in the trust would not be protected from legal judgments during your life because it is revocable, after you pass away it would become irrevocable. As a result, there would be a layer of asset protection for the beneficiaries.
In addition to this benefit, you have the power to decide how you want the trustee to distribute assets to the beneficiaries. For example, let’s say that you have conveyed income-producing assets into the trust. You could have the trustee distribute the earnings from the trust to the beneficiaries so that a certain amount of income could be produced for an extended period of time.
Perhaps you could allow the trustee to provide larger lump sums when the beneficiaries reach certain age thresholds.
The probate process is not necessarily a negative that should be avoided at all costs. At the same time, you can’t talk about the value of living trusts without mentioning the fact that the trustee would be able to distribute assets to the beneficiaries outside of probate.
In addition to living trusts, there are other types of trusts that can address more advanced estate planning objectives that a will could not satisfy.
Attend a Free Seminar
If you would like to learn more about wills and trusts, we are providing a number of great opportunities for you over the coming months. We are going to be offering a series of estate planning seminars, and you should be able to find one that will fit into your schedule.
These information sessions are free to attend, but we do ask that you register in advance. You can visit our seminar schedule page to learn more.
- What You Need to Know about the Medicaid Look-Back Rule - January 3, 2023
- How to Pass Down Your Legacy in Your Estate Plan - October 3, 2022
- Practical Steps to Take after Receiving a Terminal Diagnosis - September 30, 2022