You have likely heard the words “Trusts” and “Wills” as part of estate planning. What are the differences between the two, and how do you know which one you need?
It’s a good idea to take the time and make the effort to create an estate plan to take care of your estate — no matter if it’s a condo apartment and a housecat or a big house and lots of money in the bank — just in case something unexpected occurs tomorrow. That’s the advice from AZ Big Media in the article “The pros and cons of wills vs. trusts.”
Estate planning is the area of the law that focuses on the disposition of assets and expenses, when a person dies. The goal is to take care of the “business side” of life while you are living, so your family and loved ones don’t have to pick up the pieces after you are gone. It’s much more expensive, time-consuming and stressful for the survivors to do this after death, than it is if you plan in advance.
You have likely heard the words “trust” and “will” as part of estate planning. What are the differences between the two, and how do you know which one you need?
A will is the most commonly used legal document for leaving instructions about your property after you die. It is also used to name an executor — the person who will be in charge of your assets, their distribution, paying taxes and any estate expenses after you die. The will is very important, if you have minor children. This is how you will name guardians to raise your children, if something unexpected occurs to you and your partner, spouse or co-parent. The will is also the document you use to name the person who you would like to care for your pets, if you have any.
Burial instructions are not included in wills, since the will is not usually read for weeks or sometimes months after a person passes. It’s also not the right way to distribute funds that have been taken care of through the use of beneficiary designations or joint ownership on accounts or assets.
Another document used in estate planning is a trust. There are many different types of trusts, from revocable trusts, which you control as long as you are alive, and irrevocable trusts, which are controlled by trustees. There are too many to name in one article, but if there is something that needs to be accomplished in an estate plan, there’s a good chance there is a special trust designed to do it. An estate planning attorney will be able to tell you if you need a trust, and what purpose it will serve.
A will can be a very simple document. It requires proper formats and formalities to ensure that it is valid. If you try to do this on your own, your heirs will be the ones to find out if you have done it properly. If it is not done correctly, the court will deem it invalid and your estate will be “intestate,” that is, without a will.
Many people believe that they should put all their assets into a trust to avoid probate. In some cases, this may be useful. However, there are many states where probate is not an onerous process, and this is not the reason for setting up trusts.
A trust won’t eliminate taxes completely, nor will it eliminate the need for any estate administration. However, it may make passing certain assets to another person or another generation easier. Your estate planning attorney will be able to guide you through this process.
Whether you use a will or a trust, or as is most common, a combination of the two, you need an estate plan that includes other documents, including power of attorney and health care power of attorney. These two particular documents are used while you are living, so that someone you name can make financial decisions (power of attorney) and medical health decisions (health care power of attorney) if you should become incapacitated, through illness or injury.
Speak with an estate planning attorney. Every person’s situation is a little different, and an estate planning attorney will create an estate plan that works for you and protects your family.
Reference: AZ Big Media (March 21, 2019) “The pros and cons of wills vs. trusts”