What Is the Difference Between a Will and a Trust?
In a world filled with uncertainty, it’s more important than ever to help protect your loved ones and safeguard your legacy for the long-term.
A comprehensive estate plan helps you do just that. It ensures that your beneficiaries will have everything they need for years to come, even after you pass away. Estate planning options include wills and trusts. But what, exactly, do these terms mean? What are the benefits or disadvantages of each? Do you have to choose just one, or could you have both?
In partnership with attorney Will Worsham, The Resource Center is here to help you set up an estate plan you can feel good about. Our complimentary monthly workshops also offer a chance to learn the basics to help you get started. Learn about helping to protect your assets and ensuring your loved ones are supported with either a will or a trust – or, in some cases, both.
In the meantime, here is some more information you’ll want to know about wills and trusts and which option may be best for you.
What Is a Last Will and Testament?
Your last will and testament is a legal document that designates who will receive your assets when you pass away. In this document, you may leave financial and other assets to family members, friends or charitable organizations. Items or assets you may leave behind in a will include the contents of safe deposit boxes, vehicles and family heirlooms.1
You may also appoint guardians for your minor children in your will. If no guardian is named, your survivors will have to seek assistance through probate court. This could result in your child being placed with someone against your wishes.1
In order for your property to legally transfer to your beneficiaries, your will must be examined through a legal process known as probate court.2 This means that your will can be legally challenged.3 If your will is legally challenged, it becomes part of the public record, which may raise privacy concerns. Probate can be a lengthy, expensive process for family members, especially if your will is contested.2
Why You Want to Avoid Probate
- Cut Down Costs: Probate can be pricey, with various fees that might reduce what your loved ones inherit. There are other ways that can be more cost-effective.
- Speed Up the Process: Probate often drags on, delaying when your beneficiaries can access what you’ve left them. Alternative options can help them receive their inheritance sooner.
- Maintain Privacy: Probate makes your estate’s details public. If you prefer to keep things private, there are paths that keep your affairs confidential.
- Simplify Things: Navigating probate can be complex, involving many legal and financial steps. There are simpler methods that avoid this complication.
- Minimize Disputes: Probate can lead to disagreements among your beneficiaries. Other estate planning options can help avoid conflicts and keep the peace.
- Streamline Multi-State Estates: If you have property in different states, each might need to go through probate, complicating things further. There are strategies to manage multi-state estates more efficiently.
- Protect Your Assets: Some assets might be better protected from creditors outside of probate, depending on your estate plan and local laws.
- Ensure Smooth Transitions: For critical assets like a family business, avoiding probate can help ensure a seamless transition, keeping operations running without delay.
Example of When You Might Need a Will
- Situation: You have a straightforward estate and your main concern is to ensure your assets are distributed according to your wishes upon your death.
- Example: Jane is a single individual with a modest estate including a home, a car, and some savings. She wants to leave specific items to friends and family members and appoint a guardian for her pet.
A will is a simple, straightforward document that can clearly outline Jane’s wishes for her assets and the care of her pet. It’s an effective tool for ensuring her estate is handled as she desires, without the need for the more complex structures of a trust.
What Is a Trust?
A trust, also called a living trust, gives you greater control over how and when your assets are distributed. When you set up a trust, you appoint a third party known as a trustee to hold title to your assets on behalf of your beneficiaries.1 In many cases you may act as trustee during your lifetime and appoint a successor to take over if you die or become incapacitated.2
Your trust takes effect on the day you create it1, and your beneficiaries receive the assets upon your death.3 Your trust may continue to hold property on behalf of beneficiaries such as minor children who cannot legally take ownership of their assets until they turn 18.2
The most common type of trust is a revocable living trust, which can be amended as long as you are still alive.1 An irrevocable living trust cannot be undone once it is established. This type of trust offers tax advantages for high net worth individuals.2
One of the benefits of a trust is that, in most cases, a trust does not have to go through probate court. This means that your trust cannot be legally challenged and will not become part of the public record.3 One exception is a testamentary trust, which can be included in your will and becomes effective upon approval by the probate court.2
One disadvantage of a trust is that it cannot be used to name guardians for minor children. It is possible to establish a trust for distributing financial assets and a will to make sure your children will be cared for.1
Example of When You Might Need a Trust:
Situation: You’re seeking not only to distribute your assets but also to manage them before and after your death, with specific conditions or to avoid probate.
Example: John has a larger estate including multiple properties, investments, and a business. He wants to provide for his minor children over time and ensure the management of his business continues smoothly.
A trust allows John to manage his assets during his lifetime and beyond, setting terms for how and when his children will receive their inheritance, potentially avoiding probate, and ensuring his business is managed according to his wishes even if he becomes incapacitated.
Contact The Resource Center
Do you have questions about estate planning? Are you trying to determine whether a will, a trust or both would work best for you and your loved ones?
If so, we invite you to sign up for our complimentary estate planning workshop. We’ll provide the information you need to get started on an estate plan you can feel confident about.
Want to learn more? Give us a call at 417-882-1800 or contact us online at any time.
Sources:
2: https://www.thebalance.com/difference-between-a-will-and-a-trust-3974765
3: https://www.policygenius.com/estate-planning/living-trust-vs-will/
The Resource Center is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and The Resource Center are not affiliated companies. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. The Resource Center has a strategic partnership with tax professionals and attorneys who can provide tax and/or legal advice. Information and opinions contained herein that has been obtained from third party sources is believed to be reliable however accuracy and completeness cannot be guaranteed. This content is provided for informational purposes only and is not intended to serve as the basis for financial decisions. 00872673 04/21
