As you delve deeper into the topic estate planning—and start to make some plans of your own—it’s important to understand the difference between wills and trusts. Both arrangements help to protect assets and direct them toward the beneficiaries of your choosing, but there are key advantages and disadvantages to both, depending on the specifics of your estate. Read on for a brief guide to wills versus trusts, so you can make the best possible estate planning choices.
A will lays out the details of where you want your assets to go after your death. In your will, you can designate certain people as your heirs, or choose charities or other organizations as your beneficiaries. Of course, you’ll also be able to specify how much money, which particular assets, or what percentage of your estate you want each beneficiary to receive.
In addition to money matters, a will can also be used to give directions on what kind of funeral or burial you want, who will care for your children or other dependents, and who you want to be the executor of your estate. (For more information on estate executors, check out this article). All in all, a written will is an efficient way to ensure that your affairs will be settled as quickly and fairly as possible, as per your wishes.
A trust, on the other hand, is a legal arrangement between you, a trustee, and a beneficiary. Using a trust, you can transfer assets to a beneficiary through the third-party trustee. Why would you want a separate trustee to direct assets to a beneficiary? There are a number of reasons for taking this more indirect route for asset transfer.
One advantage of a trust over a will is that a trust can provide more specific terms around when and under what circumstances a beneficiary receives assets. For example, a parent or grandparent might create a trust specifying that their heirs receive a sum of money on their eighteenth or twenty-first birthday. The trustee—typically a legal and/or financial professional, with expertise in the area—will assist in ensuring that this transfer of assets is carried out as per the wishes of the grantor.
Another benefit of choosing a trust is that assets can be managed while you’re still alive, whereas a will is a document that only goes into effect after your death. Additionally, trusts enable a donation or inheritance to be conducted quickly, and with almost total privacy. A will, on the other hand, must pass the public probate process and is listed in the public record, which means anyone can find out what assets you left behind and to whom. Therefore, outlining decisions in a trust rather than a will can be a good choice in cases where there’s risk of friction between hopeful beneficiaries.
While there are a good deal of advantages to administering assets and inheritance through a trust, many people still prefer the simplicity of a will. Creating a will is also far less costly than working with a trust, as a trust necessitates additional legal expenses as well as the costs of ongoing management. In the end, a will is the more straightforward option for estate planning—which is perfect for some people, and not quite right for others.
One further point to consider is enacting estate plan changes down the road. Both wills and trusts can be reviewed and revised as needed; and indeed, it’s a good idea to regularly come back to your estate planning documents, especially following a major life event such as the birth of a child, a marriage or divorce, or the death of a spouse. Digital estate planning can be particularly useful in this revision process, as documents are easy to access, review, and change online.
However, do keep in mind that an irrevocable trust cannot be altered. With an irrevocable trust, the grantor gives up control of the assets in question so that they are totally managed by the trustee. An irrevocable trust offers tax benefits and protection from creditors, but for grantors who want to maintain more control over their assets and retain the ability to alter the terms of the trust, choosing a revocable trust may be the better option.
As always, the best route forward when it comes to estate planning is to chat with a professional. You can also start by checking out this presentation from HUECU to learn more about the ins and outs of estate planning, including wills, trusts, digital estate planning and much more.