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Is a Will or Trust Right for you?

Is a Will or Trust Right for you?

September 08, 2022
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LEARN ABOUT THE DIFFERENCE BETWEEN WILLS AND TRUST

You may not know the difference between a will and a trust. If you have decided to do estate planning, you should know your options and the proper tools to achieve your asset distribution goals. Currently wills and trusts are two of the estate planning tools you have at your disposal. Let's discuss what these tools are and how you can use them.

A Will

A will is a legal document that specifies how you want your assets distributed when you pass away. A will involves writing down instructions for how to distribute assets. Wills can also specify what type of medical care you'd like to receive if you're no longer able to make decisions and who should raise your underage children in the event of your passing.  See Powers of Attorney or POA to find another way to state your wishes for 1)  financial care, 2)  medical care, and  3)  child care.

Should you pass without having a will in place, the state will distribute your assets, using a set formula for just such a scenario. Most of the time, your spouse and heirs will have priority as the state distributes your assets, but that isn't always the case.  Also keep in mind that with  a will, your assets will no longer be kept private, as in the case of a trust.  They become a matter of public record.

In short, if you have a spouse, children or any significant financial assets, it's a good idea to have a will in place.

It's important to note that you can use a will and trust in conjunction.

A Trust

A trust allows you to decide how your assets are distributed and lets you create conditions for when a third party will give your beneficiary the stipulated assets. In other words, a third party will handle your assets until your beneficiaries meet your requirements.

One of the most significant benefits of a trust is that your beneficiaries can AVOID going through the probate process. Probate is a lengthy legal process that consists of an executor gathering all the assets to pay any remaining liabilities on the estate and then distributing the rest of the estate to the beneficiaries. Probate is a matter of public record, meaning neighbors, friends and family can know what you have – important to those of us who are private people.  This process can take years and may have exorbitant costs associated with it. If you only have a will, there's still a chance your loved ones will wind up in this lengthy court process.

You may want to use a trust if you have any assets that need management, like stocks and bonds, which may still be subject to federal income taxes.

Most importantly, know that a trust can be “revocable” or “irrevocable”.  Revocable trusts allow you to “revoke” or change your mind about who gets what, as listed on the trust document.  For example, you may change your mind about each child getting an equal amount of assets as time goes on.  It is tough to think about, but losing a spouse or child who is listed as a beneficiary is not as uncommon as you think – and surviving others may want to fight for a share.

For this reason, it is important to pick a day of the year (your birthday or New Years Day, for example) EACH YEAR to review these documents to make sure they still clearly state what you would like to have happen to your assets.

POAs

Powers of Attorney can be financial or medical.  Financial POAs dictate whom you would like to make decisions about your assets while you are living, but unable to make these decisions, due to illness or crisis.  Your financial professional should have one on file.  This is so important to financial advisors that a question on the “new account form” is listed asking for the phone and address and relationship to a “special contact person”.  Medical POAs select someone you trust to tell medical personal how to proceed when a life or death decision needs to be made, and you cannot make it yourself due to illness or crisis.

Planning your estate and considering the tools you use to care for your loved ones can be an overwhelming decision.  But keep in mind that it is a huge relief to make your needs known formally when you are able to clearly articulate them.

This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.