Trust vs. Will: Why a Trust Might Be the Right Choice for Your Estate Planning
Did you know that the number of Americans with a will has declined, with only 32% of Americans having an estate plan in 2024, representing a 6% decline from the previous year? 40% of people who don’t have a will say they don’t have enough assets to leave to anyone.
When it comes to estate planning, two of the most common tools used to distribute assets after one's passing are trusts and wills. Both can be effective in achieving one's goals, but it is important to know that they serve different purposes and offer distinct benefits.
Who needs a trust instead of a will? The answer to this question depends on several factors and your personal goals for your estate plan.
This article will help you understand the differences between a trust and a will. It will also help you decide which one is best for your needs.
Understanding the Basics: What Is a Will?
A will is a legal document that outlines a person’s wish with regards to the handling of his or her assets and properties after death.
A will allows you to specify who inherits your property and assets, establish child custody plans, and direct who carries out your wishes. If there's no will, applicable state laws will divide the estate, which may not be what the deceased wanted. This scenario can potentially lead to delays in the probate process.
Many people wonder how long probate takes. The probate process varies according to the estate's complexity and the applicable state laws. You decide how to distribute assets in your will while considering your loved ones' needs.
Keep in mind that significant life events such as marriage, divorce, or the birth of one or more children will necessitate a thorough review of the will and appropriate changes.
Understanding the Basics: What is Trust?
Trusts are powerful estate planning devices. They are used to manage your assets while you are alive. Using trusts allows you to arrange your estate so that when you die, the transfer to beneficiaries goes as smoothly as possible.
Trust, in particular, means that you, the grantor, transfer the property into a trust fund administered by a trustee, who then handles the property either as an individual or as an institution, which manages the fund according to your interests.
The conditions for distribution among your beneficiaries can be defined. In fact, trusts permit and allow for specific conditions to be laid down for distributions and for assets to be secured against the creditors and possibly tax.
Understanding how trusts work would give you more control over estate planning decisions.
Key Differences Between Wills and Trusts
If you are planning your estate, you must know the separate roles of wills and trusts. A will states a plan for your assets after death, wherein it goes through the acceptance of court documents to make it valid. This phase can be a lengthy and public process.
Meanwhile, a trust manages assets while the trustor is still alive. The trustor's wealth is distributed upon their death without going through the often complex and lengthy process of probate. Trusts give beneficiaries greater control over when and how they receive their inheritance.
A trust is effective immediately after its creation, but a will becomes effective only after death.
Advantages of Establishing a Trust
Setting up a trust offers a multitude of benefits with which to improve estate planning.
Trusts avoid probate, which benefits heirs by saving both time and money. Assets held in a trust are transferred directly to the beneficiaries, allowing for quicker access to their inheritance.
The features of a trust are beneficial for minor children or beneficiaries who are not financially responsible.
Trusts can maintain an element of privacy since they do not become public documents like a will does.
Some trusts can lower estate taxes, which means more money stays with family. These reasons make trusts appealing to many people.
Determining the Right Choice for Your Estate Planning Needs
To know whether to choose a trust or a will for your estate plan, you first need to assess your finances and the complexity of your properties and assets.
If you have varied investments or have particular wishes regarding the distribution of your assets, a trust may afford more control and privacy. Evaluate your family dynamics. Trusts can help prevent family disputes and lengthy probate proceedings.
If your estate is fairly straightforward and you have limited assets, a will may be enough for your estate plan. Always be clear about your goals, whether you want to reduce taxes, protect beneficiaries, or distribute wealth quickly. Investing in a trained estate planner may help you devise a solution that caters to your estate’s unique needs.
