Wills vs. Trusts: Which One is Right for You?
Jan. 11, 2024
Every estate plan is as unique as the person creating it. While there are no "one size fits all" solutions, wills and trusts are two common estate planning tools that can help individuals protect their assets and ensure their wishes are carried out after they pass away. But which one is the right option for you? The answer depends on your specific needs and goals. Understanding the differences and similarities between wills and trusts will help you make an informed decision.
An Overview of Wills
A will — legally known as a last will and testament — is a document that outlines your wishes regarding the distribution of your assets after your death. It's like a roadmap you design to guide your loved ones through the process of settling your estate.
Wills are straightforward and relatively easy to create. They provide a clear direction for the distribution of your assets and ensure that your wishes are respected. However, it's important to note that:
A will goes through probate — a court-supervised process of authenticating a will and distributing assets. This can sometimes be a lengthy and costly process.
A will becomes part of the public record once it's probated. This means it's potentially accessible to anyone who wishes to view it. This transparency can be either a positive or negative aspect, depending on your personal privacy preference.
In a will, you can name an executor who will be responsible for carrying out your wishes, and you can also designate guardians for minor children. In addition, a will allows you to make specific bequests; this might include leaving certain assets to specific individuals or organizations. You can also detail how you would like any debts or taxes to be paid with a will.
The Role of Trusts
On the other hand, a trust is a legal arrangement where you transfer assets to a trustee, who then holds and manages those assets for the benefit of your chosen beneficiaries. Unlike a will, a trust can start distributing assets before death, at death, or afterward.
Trusts offer several advantages. They allow for a quicker distribution of assets, bypassing the probate process. This can save time and money, and also keep your affairs private. Trusts also provide more control over how and when your assets are distributed, which can be particularly beneficial if you have minor children or beneficiaries with special needs.
While trusts offer many benefits, they do have some disadvantages to consider:
Trusts are usually more expensive to set up than wills due to their complexity and the need for ongoing management.
They require a significant amount of time and effort to manage. If you establish a trust, you or your trustee must manage it properly or it could become ineffective.
Certain types of trusts can't be modified after they are created. This lack of flexibility can be problematic if circumstances change.
Trusts also don't provide for the appointment of a guardian for minor children, a provision which can only be made in a will.
Therefore, while trusts can offer significant benefits in terms of asset protection and probate avoidance, they may not be the best choice for everyone. It's essential to consult with an experienced estate planning attorney to weigh the pros and cons before deciding which is right for you.
Different Types of Trusts
Trusts can come in various forms, each with its own unique benefits and considerations. Here's a quick rundown of some common types of trusts you might consider:
Revocable Trusts - Often referred to as "living" trusts, revocable trusts allow you to maintain control over your assets during your lifetime. As the name suggests, you can change or dissolve these trusts at any time. This flexibility makes revocable trusts a popular choice among our clients—as they offer the possibility to bypass probate and provide for smooth management of assets.
Irrevocable Trusts - These trusts cannot be altered or dissolved once they've been established without the consent of the beneficiaries. This lack of flexibility can be a deterrent for some, but these trusts offer significant benefits such as potential tax advantages and protection from creditors.
Charitable Trusts - Charitable trusts, as the name implies, involve gifting assets to a charitable organization. They're a fantastic way to support causes you care about while also providing potential tax benefits. There are two main types: Charitable Remainder Trusts (CRT), where the donor receives income from the trust and the remainder goes to charity, and Charitable Lead Trusts (CLT), where the charity receives the income and the remainder returns to the donor or other beneficiaries.
Special Needs Trusts - If you have a loved one with special needs, a Special Needs Trust (SNT) can ensure they receive financial support without jeopardizing their eligibility for government benefits. This type of trust requires careful setup and management, which is where our team comes in.
Testamentary Trusts - A testamentary trust is created through a will and becomes effective upon death. It offers a high level of control over asset distribution, making it a great tool for those with minor children or beneficiaries who may need financial guidance.
Which One Is Right for You?
So, wills or trusts — which should you choose? The truth is, every estate plan is unique. What works best for you will depend on your individual circumstances, including the size of your estate, your family situation, and your long-term goals.
A will not be an advantageous option if you want your estate to be distributed quickly or privately. However, if you have a relatively simple estate and want to avoid the cost of setting up and managing a trust, a will is likely sufficient.
A trust, on the other hand, offers more comprehensive control over your assets and can provide significant benefits in terms of tax planning and asset protection. But it also requires more time, effort, and expenses to establish and maintain.
No matter which documents you incorporate into your estate plan, remember that the goal is to build a plan that fits your specific wishes. An experienced estate planning attorney can help you make key decisions with confidence.
Why Not Both?
In some cases, incorporating both a will and trust into your estate plan may be the best option. For example, you could use a revocable living trust to manage assets during your lifetime and then transfer any remaining assets to beneficiaries through a pour-over will. This can provide the benefits of both options while minimizing potential drawbacks.
Another scenario where both documents might be useful is for those with minor children. In this case, you could use a will to name guardians and establish a testamentary trust for the financial management of your child's inheritance until they reach adulthood.
Ask an Attorney for Guidance
If you're still feeling stuck, you can reach out to us at DeChello Law Firm LLC in North Haven, Connecticut. We serve clients throughout New Haven County and the surrounding areas. We'd be happy to schedule a time to chat about your estate planning needs. Our estate lawyers are here to guide you through this complex process. We'll take the time to understand your specific needs and goals, and help you craft an estate plan that provides peace of mind for you and your loved ones.
It's never too early to start planning. Contact us today to schedule a consultation. Together, we can put a plan in place that safeguards the legacy you've worked hard to build.