Advance Capital Management reported that 27% of adults have not discussed estate planning with their family and lack a will or trust. For some people, not understanding the process of what they may need could hold them back from proper planning.
Two primary options for this purpose are wills and trusts. Although both serve similar objectives, they have distinct features and uses.
About wills
A last will and testament is a legal document that outlines your wishes regarding the distribution of your assets after your passing. It serves as a roadmap for the probate court, detailing who will inherit your property, who will be the executor of your estate and who will be the guardian for your minor children if needed. In essence, a will becomes effective only upon your death and goes through the probate process.
Trusts explained
A trust is a legal entity that holds and manages your assets during your lifetime and after your death. A trust consists of three key roles: the grantor (you, the creator), the trustee (the individual or entity responsible for managing the trust) and the beneficiary (the person or persons who will benefit from the trust). Unlike a will, a trust becomes effective the moment you create and fund it. Assets you place in a trust are not subject to probate, which allows for more swift and private distribution.
Comparing wills and trusts
One notable difference between a will and a trust is that a will is public, as it becomes part of the public record during probate proceedings. In contrast, a trust remains private, as it does not go through the probate process. This confidentiality can be a significant advantage for individuals who prefer to keep their financial matters discreet.
Another distinction is that you can use a will to appoint a guardian for minor children, while you cannot do this with a trust. If you have young children, this is an important point to note.
A will can include instructions for the distribution of personal property and assets, such as sentimental items or family heirlooms. A trust, on the other hand, primarily deals with financial assets and investments, making it a valuable tool for managing complex or substantial estates.
Both wills and trusts play a crucial role in estate planning, and the choice between them depends on your individual circumstances and objectives. Understanding the distinctions between these two instruments is essential for making informed decisions about your estate planning needs.