Death may be inevitable, but most people prefer to avoid thinking about it for as long as possible. That may explain why most adults in the U.S. have not made plans for passing their assets on to loved ones. According to one survey, 60% of adults do not have a will or a trust. It may take a chronic illness or prodding from a caregiver to convince seniors to create an orderly plan for the eventual distribution of their estate. Whether to use a will or a trust as the primary vehicle to accomplish their goals and fulfill their wishes is a common question, but answering it requires a careful look into the pros and cons offered by each of them.
Managing the distribution of an estate
The primary purpose of both wills and trusts is to give you control over management and distribution after you die of the assets you’ve worked hard all your life to acquire. If you die without creating a trust or preparing a will, you died intestate. Dying intestate means the intestacy laws of the state you resided in at the time of your death control the distribution of your assets.
For example, if a man dies leaving a wife and two children, a will or trust would permit him to direct that all or most of his estate be given to his wife in order to provide her with the resources to care for herself and the children. If the man died before meeting with an attorney to make his wishes known, state intestacy laws may direct that one-third of the estate be given to the surviving spouse and two-thirds to the children. A will or a trust would have prevented distribution of the estate contrary to the person’s wishes.
Both wills and trusts allow you to direct the manner of distribution of your assets after your death and allow you to avoid state intestacy laws. Differences between them could make one a better option than the other depending upon your goals and personal preferences.
A will is a legal document prepared and signed during your lifetime that does not take effect until after you die. A trust, on the other hand, takes effect during your lifetime immediately after it is created.
Last will and testament
A will, which you may also see referred to as a last will and testament, is a legal document created during your lifetime providing for the orderly handling of your affairs after your death. It takes effect at death and includes the following:
- Designation of an executor: Instead of a judge appointing someone to handle the affairs of your estate after your death, a will lets you name the person the court authorizes to act. Duties of the executor include taking control of and protecting assets, paying debts of the estate and distributing assets to your beneficiaries according to your instructions included in the will.
- Appointment of a guardian: Parents with minor children may designate a preference of the person or persons a court appoints as guardian to care for the children.
- Control over distributions to children: Parents and grandparents may not want minors to have control over assets they inherit until they attain a level of maturity. The attorney creating a will may include in it a testamentary trust into which assets going to a minor may be transferred and held under the supervision of a trustee and used for the benefit of the child until ultimately distributed when the child reaches the age designated in the trust.
Benefits of a will include ease of creation and flexibility in making changes even after it has been signed. On the negative side, a will must go through a court proceeding referred to as probate to give the executor legal authority to act on behalf of the estate. This takes time and can be expensive.
Trusts
Trusts, like wills, are legal documents allowing you to control distribution of assets and the handling of your affairs after death, but they can do more because they take effect during your lifetime. Unlike a will, an essential step in creating a trust involves transferring title to assets.
Assets you own during your life may be passed to your loved ones using a will without transferring title or ownership during your lifetime. Ownership of assets you wish to control through a trust must be transferred to it in order to allow the trustee, which is the person you designate to manage trust assets, to have control over them.
Giving a trustee control over your assets offers protection in the event you become incapacitated. For example, the family of a person diagnosed with Alzheimer’s disease may be forced to have a guardian or conservator appointed to manage the person’s financial affairs. A will would not help because the person retains ownership and control over them while alive. If the assets are in a trust, they are under the control of a trustee and may continue to manage them without the need for court intervention.
Another advantage of a trust over a will is that assets held in trust may be passed to beneficiaries according to the terms of the trust agreement without the need for probate. One of the advantages of a trust over a will is privacy. Probate makes the will a public document because it is a court proceeding. Trusts allow you to retain your privacy because they do not require court action to carry out their terms.
Creating a trust may be more expensive than preparation of a will. You not only have the fees for the attorney drafting the trust document, but you must also pay the costs associated with transferring assets into it.
Making the choice between a will or a trust
The advantages and disadvantages associated with each estate planning vehicle must be weighed against a person’s financial and family circumstances in making a choice between a will or a trust. A consultation with an estate planning attorney may help seniors and their caregivers to sort through the options and reach a decision.
Author’s Bio – Steve Howards
Steve has been writing legal-centric articles for several years now. He started working with the personal injury attorney law firm Herrig & Vogt in 2019 as the Content Marketing Manager, which has allowed him to expand on his writing in personal injury, family law, and much more. Steve strives to offer the public advice on various laws covering a variety of practices.