In your lifetime, you will accumulate various assets such as real estate, cash, insurance, investments, and other possessions that comprise your net worth. It’s important for your loved ones to inherit all of them when the time comes. With a proper estate plan, you can ensure that all your wealth and properties will be protected and passed down to your intended beneficiaries.
With the help of a reputable estate planning attorney, you can decide how you wish your wealth and properties to be managed and distributed after death. Without a legal plan, all your assets will be subjected to exorbitant estate taxes or dispersed by an appointed individual who doesn’t know of your plans.
There are many estate planning tools for your consideration. But, the most common forms are writing a will or setting up trust accounts. Learn the difference between these two vital elements of estate planning below.
A will is a legal document stating how you want your assets to be handled and distributed after passing on. It lists down all your assets and debts along with their intended beneficiaries. More importantly, it designates an executor who will oversee the implementation of the instructions written in the will.
The will has to undergo the probate process to determine its authenticity. A probate court will decide if the legal document is true. After validating the document’s legitimacy, the court will give the executor the legal power to act on behalf of the owner of the will.
Advantages of Wills
- For smaller estates, creating wills is cheaper and easier to set up than other estate planning tools.
- You can assign a guardian who will take care of and provide for your minor children.
- You can choose a trustworthy individual to be your executor and not just someone the court will appoint.
- In case of an untimely passing, having a will avoids intestacy, which allows the state to oversee the passage of your assets in accordance with the law.
Disadvantages of Wills
- For larger estates, the probate process can be costly and time-consuming. It can take one to two years before being completed, which comes with expensive fees.
- Since it undergoes a court process, your will becomes a public document that anyone can have access to.
- It can be challenged by creditors that may take away your asset if the court deemed their claim valid.
A trust is another estate planning tool used to transfer estate from one person to another. It is a legal arrangement where you give another individual or institution—the trustee—temporary authority to handle and manage your assets indicated in the trust. After death, the trustee will pass on all your assets to their intended beneficiaries.
There are many different types of trusts, but they can be categorized into two: living and testamentary trusts. A living trust is created during an individual’s lifetime. It is a revocable agreement which means you can modify or even revoke the contents within your lifetime. On the other hand, a testamentary trust is created and set up through a provision in a will.
Advantages of Trusts
- It prevents your assets from undergoing the probate process, which saves a lot of time and money. The trustee can pass on your estate to the beneficiaries without court supervision.
- If you’re incapacitated, the trustee can take over and manage your assets for you. This means they have the right to take action with your best interests in mind.
- Upon death, the contents of the agreement are effective immediately. This means your beneficiaries will get their inheritance faster and easier.
Disadvantages of Trusts
- It is harder to set up, and the preparation costs can be expensive.
- All your assets and properties will have to be retitled to the name of the trust. Otherwise, they will have to go through the probate process.
- Revocable trusts don’t prevent creditors from taking away your assets.
Consider Your Options
Now that you’re familiar with how wills and trusts work, it’s time for you to decide which estate planning tool you will use. Ultimately, your choice will have to be tailored and designed to what you need. A reputable estate planning attorney can guide you through the planning process and help you decide which path to take.