Money Matters - The Difference Between Wills and Trusts in Estate Planning

 By John Wood, Attorney — Grant Park Legal Advisors 

Many of us procrastinate on estate planning. Thinking about what happens once we are no longer around can be a depressing thought, however inevitable it may be for all of us. 

While most people may understand that estate planning is important, only 33% of Americans have drafted estate planning documents. One reason for procrastination in estate planning may be confusion over what certain documents do and what certain terms may mean. 

Here, we will dive into the difference between two estate planning considerations — wills and trusts. Learning the difference between the two may encourage some to finally move forward with their estate planning. Proper estate planning can be a valuable gift to leave your loved ones after you pass away. 

Wills 

Wills are legal documents that outline how you would like your estate to be handled after your death, and can be helpful tools for people with fewer assets and straightforward distributions. Wills allow a person to determine who will receive their assets after their death, name guardians for any minor children, and designate an executor to manage the affairs of their estate. 

Your estate may save more than the cost of the Will, since it can waive the bond requirement found in many jurisdictions. The Bond is an insurance policy, purchased by the estate to make sure the executor distributes the assets correctly.

It’s essential that people understand that wills only become effective after one dies and needs to go through a process to administer property or assets to heirs. During the probate process, the court will ascertain the validity of a will and act as supervisor of your estate after your passing. 

Trusts 

A trust works as a legal instrument, allowing one to transfer ownership of their assets to a trustee for the benefit of their beneficiaries. Trusts are suitable for people who carry larger assets or have more complex estate matters, but also work for people with young children who have disabilities or chronic illnesses and require extra protection.

Trusts allow you to avoid probate, control the distribution of your assets, protect assets from creditors or lawsuits, and name a trustee who can manage your assets on behalf of beneficiaries. 

There are several different kinds of trusts, including revocable trusts, which allow for the transfer of assets to a beneficiary during one’s lifetime, not after death. This allows one to avoid the post-death probate process. 

Additionally, irrevocable trusts work as separate entities, holding and managing assets for beneficiaries. Terms are set by a grantor in an irrevocable trust, but once the terms are set, the trust is controlled by the trustee. 

Choosing between a will and a trust 

Your individual circumstances will help you choose between a trust or a will in estate planning. The size, complexity, and family situation are all considerations when making a choice. If you have a small estate, a will may be sufficient to cover your needs, but if you have many assets and a large estate, a trust may be a more effective tool. 

Estate planning can be a complex process — one that will likely require consulting an estate planning expert or attorney before diving into decision-making. An estate planner can help you review your assets, consider the needs of your beneficiaries, and plan for the future to ensure a smooth transfer of your assets once death occurs. 

Both wills and trusts are vital tools within the estate planning process, and understanding the differences between the two will ensure a smoother, more advantageous process. Estate planning advisors can help guide you through this process and help you reach all of your estate planning goals. Though the end of our lives is something we may not like to think about, being prepared with a legally sound will or trust will help us leave behind more than just memories.