Wills versus Trusts: Misconceptions
When it comes to estate planning, two of the most common tools are Wills and Trusts. It is improtant to understand what each Wills and Trusts each do, how they differ, and which one might be right for you. By understanding the basics, you can make more informed decisions about your estate plan.
Wills
A Last Will and Testament (aka a “Will”) is a legal document that states how you want your property distributed after your death. It also allows you to name guardians for minor children, appoint a personal representative to handle your estate, and provide instructions for other matters. Wills are generally quicker, simpler, and less costly to create than a Trust, but they must generally go through probate, which is the legal, and often court-supervised process of settling your estate.
Common misconception: Many people believe that having a Will automatically avoids probate, however it is just the opposite. Wills do not help avoid probate. Instead, a Will acts as an instruction guide through probate. It is your chance to tell the court who should be appointed to manage and distribute the estate (called a “Personal Representative” or “Executor”), how estate assets should be distributed, and who you want to have custody of any minor children, if applicable.
Trusts
A Trust is an agreement between you and one or more individuals about how to manage and distribute your assets. Like a Will, a trust provides instructions for what to do with your assets upon your death and who should be in charge of carrying out those instructions (called a “Trustee”). Unlike a Will, a trust can also help manage assets during your life if you become incapacitated and assets controlled by the trust generally avoid probate. Trusts are more complex to create because you have to fund them during your life, but save time and money by being easier, simpler, and quicker to administer if you die or become incapacitated.
The most common type of trust is a revocable living trust. During your lifetime, you (as the creator of the trust) can manage and use the trust’s assets without restriction. You can change the trust, add assets to it, take assets out of it, or revoke the trust altogether. During your life, you are in full control. Upon your death or incapacity, a successor trustee takes over and follows the instructions in the trust — generally without court involvement.
Common misconception: People often think trusts are only for the wealthy. In reality, trusts can be valuable for individuals and families at many income levels. They can help avoid probate, maintain privacy, and ensure a smoother transition of assets to loved ones.
Wills versus Trusts: What’s Right for You?
Both Wills and Trusts serve important estate planning roles. A Trust is beneficial because using one can help avoid probate altogether. A Will, on the other hand, can be right for limited budgets or estates where most assets have a beneficiary designation built into them (like life insurance policies, retirement accounts, etc). The right approach depends on your assets, your family situation, and your goals.
Moving Forward
Whether you choose a Will or a Trust, the most important step is to have a plan in place. Without one, the estate will follow state law and distribute your assets accordingly, which may not match your wishes. By educating yourself and working with expert attorneys, you can ensure your estate plan is effective, up-to-date, and tailored to meet your needs.