Do I Need Both a Will and a Trust?

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What Estate Documents Do You Need?

Estate planning is an important step you can take to ensure your assets are distributed according to your wishes when you pass away. Two common estate planning documents that are often discussed are wills and trusts.

While both of these tools help ensure your assets are distributed according to your wishes, many people wonder if they need both a will and a trust—and if they don’t, which one is a better choice? Below, we’ll explore the differences between wills and trusts, their advantages and disadvantages, and whether or not you need both.

What Is a Will?

A will is a legal document that can handle a number of tasks. Those include:

  • Specifying how an individual’s assets should be distributed after their death
  • Naming an executor who will be responsible for carrying out the provisions of the will and settling the estate
  • Naming a guardian for minor children

Some Advantages of a Will

One of the main advantages of a will is that it can be a relatively simple and cost-effective way to document how you want your assets handled after you pass away.

Other benefits of wills include:

  • They let you provide some protection for your minor children by naming a guardian you trust
  • They are easy to update or change, and you can do so at any time in your life
  • Most people are aware of how wills work, so your loved ones will more easily understand the importance of your will and know to look for it

Disadvantages of a Will

One of the main disadvantages of a will is that it must go through probate, which is a court-supervised process that can be time-consuming and expensive. Probate can also be public, which means anyone can access the contents of the will—and thus see the details about your assets and who is receiving them. Additionally, a will only takes effect after an individual’s death, so it can’t be used to manage or secure assets during your lifetime.

What is a Trust?

A trust is a legal entity created to hold and manage assets. There are two main types of trusts: revocable and irrevocable. A revocable trust can be changed or terminated by the individual who created it. An irrevocable trust cannot. Generally, if you decide to create a trust, most of the time, you will want to create a revocable trust because you maintain the power to change the terms and ultimate distribution. With irrevocable trusts, it can be much more difficult to effectuate changes, and often you lose control over the assets. Irrevocable trusts are primarily used in certain unique circumstances like Medicaid planning, liability protection, or tax reasons.

When you create a trust, you must fund it by transferring ownership of certain assets into it. When you do that, you no longer own those assets. The trust does. However, with most trusts, you maintain a lifetime benefit in those assets so you can use them for your benefit and that of your family.

Some Advantages of a Trust

One of the main advantages of a trust is that it can be used to manage assets during an individual’s lifetime. This can be useful if you become incapacitated, as the trustee can manage assets on your behalf when they can’t make decisions about the assets on your own.

Some other benefits of trusts include:

  • The ability to skip probate. Since the trust owns the assets and not you, the assets don’t go through probate when you pass away. At death, your beneficiary receives the balance of the trust and benefits from the assets. Avoiding probate can be especially important if you have property in more than one state. If you do have property in multiple states, then each state would require probate to ultimately distribute those properties to your beneficiaries, thereby increasing the costs and expenses of probate.
  • Potential tax advantages and creditor protection. Some trusts, such as a Community Property Trust, can provide significant tax advantages. This type of trust, in particular, allows the minimization of capital gains tax for married couples. Additionally, certain types of irrevocable trusts can provide asset protection in certain cases as well as assist in Medicaid planning.
  • Keeping assets private. Trusts do not have to be public, which means you can transfer assets to your beneficiaries without making it a matter of public record. Privacy can be very important if you have significant assets

Some Disadvantages of a Trust

The cost to establish a trust is one disadvantage, especially when compared to the cost to create a will. Trusts tend to be more expensive to set up. Additionally, a trust requires funding, which can be a chore. You must retitle bank accounts, investment accounts, and real estate into the trust from your individual name. This process can take time and require a fair amount of work. Finally, if you create an irrevocable trust, it can be difficult to change or modify due to the nature of the trust and the law allowing for modification.

So Which Is Right for You?

Everyone can benefit from a will. Even if you do not have a lot of assets to pass on to others, a will allows you to distribute what you do have in the way you want. If you have minor children, it’s important to have a will to name a guardian.

Not everyone may benefit from a trust. If your estate is fairly simple and straightforward, a basic will might be all you need. However, if you have some wealth, a trust can help avoid probate or facilitate tax savings or asset protection. However, even if you do not have a lot of wealth, a trust might be a good idea if you want to avoid the expenses and time that probate takes and make the distribution process much easier for your family at death.

Trusts can also be a way that you can pass on any type of assets while controlling how they should be used. For example, perhaps you want to leave your grandchild $10,000, but you really want him to use it for a downpayment to buy his first home. You could create a trust with provisions that allow him to access the money only for that purpose.

Ultimately, to better understand what estate planning tools would be right for you, it’s a good idea to speak with an experienced estate planning attorney. Everyone’s situation is different, and what may work for one family may not work for another. Our team at Crow Estate Planning & Probate can work with you to understand what your estate planning goals are and what might be right for you. Contact our offices today to find out more.

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