Comprehending the differences between wills and trusts is essential when planning for the future. These two estate planning tools serve unique purposes and offer various advantages and limitations.
Here, you can learn more about the differences in wills and trusts and how they may both have a place in your estate plan.
Wills: The foundation of your estate plan
A will is a legal document that specifies your wishes regarding asset distribution and the care of any minor children after your death. It becomes effective only upon your demise and is subject to probate, a legal process where a court oversees asset distribution.
Wills are generally simple to create, allowing for the nomination of guardians for minor children and providing clear instructions on asset distribution. However, they have limitations, such as the necessity of probate, which can be time-consuming and costly. Furthermore, once probated, a will becomes a public document and does not allow for ongoing management of one’s wishes over time.
Trusts: Providing flexibility for managing your estate
Trusts are considered fiduciary arrangements. These are managed by a trustee on behalf of the beneficiaries. You can establish a trust while you are alive, called a living trust, or have one after you die, which is a testamentary trust.
Trusts offer the advantage of bypassing the probate process, allowing quicker asset distribution. They ensure privacy as they are not public records and provide more control over when and how assets are distributed. However, trusts can be more complex and expensive to set up, require ongoing management, and cannot specify guardians for minor children.
What’s right for you?
Deciding whether you’d like to set up a will, a trust or both, is a process that should be informed by your personal circumstances, financial situation and estate planning goals. Wills are suitable for straightforward estates and nominating guardians, while trusts offer more control and privacy. It’s ultimately beneficial to consult with an estate planning professional to make an informed decision tailored to your needs.