Wills vs. trusts – which should you choose when it comes to passing your estate down to your heirs? Not being prudent might mean a painful process replete with legal costs, fees, and taxes. Here, we take a look at wills and trusts so that you can decide which is most appropriate for your situation.
Should You Make a Will?
First, it is a good idea to take a deeper look at definitions. A will declares how your assets will be dispersed after your passing. A living trust, however, can come into play while you are still alive. Wills have often been a popular choice, perhaps due to their dramatization in books and movies. However, a will might not always be the best option for most.
This is because wills involve a probate process, which can come with more costs. Living trusts, in comparison, have a higher upfront cost, but negate the need for a probate process. This makes it the more cost-effective option in the long run. There is one exception – which is that some states offer simplified and expedited probate if the estate comes beneath a specific amount threshold, which varies from state to state.
Advantages of a Trust
A living trust is valid the minute you execute your documents. From then on, it is up to you to manage the assets you have outlined. Aside from being more affordable, which we described earlier, a living trust allows you to manage your assets during and after your death. A living trust is also not a public record unlike a will, which gives you some privacy.
Other advantages include tax advantages (federal and state), a higher chance of withstanding contests to your trust, and being able to choose when special-needs dependents, grandchildren, or young children can access your trust.
Trusts are also easier and faster to process than a will and possess more specific stipulations than power-of-attorney on wills.
On Beneficiaries
If you have a child from a previous marriage that you would like to include as a beneficiary, it would be prudent for you to consider a trust. Using joint ownership or a beneficiary design could lead to your spouse having control of your assets, which means that they could then be directed elsewhere. Using a trust means that your children will be in charge of their own shares. They can use it to pay for their own children’s education or withdraw money for their living expenses. Their inheritance will also be protected from bankruptcy and creditors. All of these options would not be available on a will.
Retirement Funds
Hiring an experienced attorney will help you determine who will receive your life insurance, 401(k), or IRA. The recipient of these accounts is based on the account of the policy instead of the name on your trust or will. Designing a specific trust can help you better signal your intentions.
Choosing a Trust
More and more people are thus choosing to go with trusts for their affordability, flexibility, and precision that they offer compared to wills. Estate planning can be a complicated process, so you want to ensure that you are aware of the fine print.
