Trusts vs. Wills: What’s the Difference?03 May 2023, by Estate Planning in
Written by Timothy Czekaj
When working out the details of your comprehensive estate plan, you may be looking into which instruments are the best fit to help you reach your goals and set your family up for success after your passing. Trusts and wills are two documents you will likely hear about most often.
One is not inherently better or worse than the other, and you should speak with your estate planning attorney to determine which options will fit your estate plans best. With that in mind, here is more about how wills and trusts work, their differences, and how to add them to your financial plans.
What’s a Trust?
Trusts can take multiple forms. Generally, you can place assets, property, and funds in trusts that will be left to your beneficiaries. You must assign a trustee to manage the trust account, as once you place your assets into the trust, they belong to the account. Some of the benefits of trusts include:
- Availability for all estate sizes
- The ability to avoid probate
- The ability to control what happens to your assets and property after you pass away
- The ability to plan accordingly in case of incapacitation
Types of Trusts
Some of the most popular types of trusts to set up include:
- Living trusts – With a living trust, your assets are transferred to designated beneficiaries while you live. Vehicles, expensive jewelry, funds in savings or bank accounts, collectible art, real estate, and intellectual property can all be placed in a living trust. However, the beneficiaries cannot access these assets until you pass away.
- Irrevocable and revocable trusts – Irrevocable trusts are different from revocable trusts in that your revocable trusts cannot be changed once they have been set up. With revocable living trusts, you can make changes to the assets contained within the trust and designated beneficiaries.
- Charitable trusts – Charitable trusts are set up so that you can gift certain assets, property, and valuables to philanthropic organizations. You can put specific assets into irrevocable or revocable trusts, with your remaining assets to be placed in a charitable trust.
- Life insurance trusts – One of the top benefits of life insurance trusts is that the assets are not taxable. When you set up a life insurance trust, when you pass away, your beneficiaries will be entitled to the assets contained within the trust.
What’s a Will?
In contrast, a will is a document that describes various estate plans. Most notably, it describes how your assets and property should be distributed to your named beneficiaries when you pass away. Wills are revocable, which means you can change them at any point while you are alive.
Other details that your will should include who will act as the legal guardian of your children if you pass away while they are minors, specific medical decisions you would make if you become incapacitated, and details surrounding critical financial decisions you would make if you become incapable of doing so.
How Are Trusts and Wills Different?
Trusts and wills are both a part of comprehensive estate plans. However, they are two entirely different financial instruments, and you may be able to benefit from both. However, there are some drawbacks. Generally, living trusts are more expensive to set up than a traditional will. This is because a trustee must manage trusts after they are created, while a will simply remains in effect.
You must also be prepared to transfer assets into a living trust. Otherwise, the trust does not benefit your estate, and you could be subject to substantial estate tax implications. Conversely, once you set up a will, you do not need to make any changes or manage the well unless you wish to.
Trust or Will: Which Is Right for You?
Generally, most estates benefit from having both living trusts and wills in place. Each is designed to serve its own purpose. There is no one size fits all approach to estate planning. Consider your needs, those of your family, and how you want your estate to be handled when you pass away.
You might decide to go with a standard will if you do not have any children or assets or are unmarried. However, if you have children or your estate has substantial value, it may be best to implement both a will and trust as part of your estate plans. Additionally, having multiple legal instruments to protect your beneficiaries and your estate may be well-advised if you have any other dependents.
Reach Out to an Estate Planning Attorney for Help Today
If you are developing thorough estate plans, chances are including both a will and trust may be in your best interests. Trusts can help set your beneficiaries up for long-term success and growth, while your will can ensure your wishes are carried out as you intended after you pass away.
When you need help implementing wills or trusts as part of your estate plans, an experienced estate planning lawyer at Czekaj Law, LLC can help. Contact our team by phone at 717-275-9770 or through our online contact form for a confidential consultation today to further discuss wills, trusts, and your other estate plans and needs.