If you’re already considering which estate planning tools to use, congratulations – you’re ahead of the game. The majority of American adults don’t have an estate plan at all. But once you get into the process, it’s easy to get overwhelmed with all the options you have.
So, if you’re considering what to do, is a will enough, or do you need a trust as well? The short answer, as with so many legal questions, is “it depends.” Below is some general information on why a trust may (or may not) be right for you. For advice on your specific situation, give our offices a call to speak with an experienced estate planning attorney.
What’s the difference between a will and a trust?
Your will, or more formally, your Last Will and Testament, lays out your wishes for what will be done with your estate (your money and property) after you die. In your will, you can appoint a personal representative, also known as an executor or administrator, who will be in charge of settling your final affairs, paying off any debts, and distributing your assets to the people named in the will (your beneficiaries).
If you don’t have a will, your property will be inherited according to the laws of intestate succession. Likewise, if you have a will but it doesn’t include all of your money and property, then the laws of intestate succession apply to anything not covered by the will.
A trust, in contrast, is a separate legal entity managed by a trustee for the benefit of your named beneficiaries. You can set up a trust during your lifetime (often called a living trust). Or you can set out the terms of a trust in your will to be created after you die (often called a testamentary trust).
Advantages of a trust
- Privacy: A will must go through probate, which is a public court process. A properly funded trust, by contrast, can help avoid probate and offers greater privacy. The inner workings of a trust are set up in the trust documents, which are only accessible to the people named in the trust. Note, however, that any real estate transferred to the trust will still create a public record with the county clerk or Register of Deeds. There will also be a public record created if the trust is ever involved in litigation.
- Control: Putting your assets in a trust means that they will be used and managed for the purposes you determine when you create the trust. For example, a special needs trust can be set up for the benefit of a child or grandchild with a disability who may not be able to manage the assets himself or herself.
- Asset protection: Depending on the type of trust, assets placed there may be protected from creditors, tort liability for injuries, and other potential threats.
- Tax benefits: Depending on the type of trust, there may be tax advantages to putting assets in trust, both during your lifetime and after your passing. A tax professional can explain whether this is to your benefit.
Disadvantages of a trust
- Administrative costs: Setting up a trust is a somewhat complex process, and there are fees associated with re-titling assets in the name of the trust. Establishing a trust makes recordkeeping more complicated, and precision is key. Depending on the type of trust, you may need to file a separate tax return for the trust.
- Limited access to assets: Once you put assets in a trust, they are under the control of the trustee; unless you are also the trustee, that means they are out of your direct control. In an irrevocable trust, once you put the assets there, you can’t take them back out; it’s a one-way trip. In a revocable trust, you can transfer assets back to yourself, but that still takes time and effort.
- Need for competency: The person you pick as trustee must be competent and capable of doing the important work of managing the trust. Choosing the wrong trustee can create significant problems, so it’s important to proceed carefully.
An estate planning attorney can help
There is no one-size-fits-all answer when it comes to estate planning. The decision of whether to establish a trust, and if so, what type of trust, should only be made in consultation with an experienced legal professional. We can review your situation and recommend the right options to protect your assets and secure your legacy.
Give us a call or contact us online to speak with an estate planning lawyer at Williams Law Group, LLC.
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