Creating and maintaining an estate plan is one of the most important things you will do for yourself and your loved ones over the course of your life. Having an estate plan in place ensures that your estate assets are distributed according to your wishes after you pass away. There are two common tools that can be used to distribute those assets – a Last Will and Testament and a trust agreement. Both have distinct advantages and disadvantages which should be considered when deciding which to use. To help you in your estate planning process, the attorneys at Legacy Care Law Firm discuss whether to use a Will or trust to distribute your estate assets.
Understanding Wills and Trusts
Without a Will or trust in place you would leave behind an “intestate” estate. When that happens, the applicable state intestate succession laws determine who inherits from your estate and in what proportion they inherit assets. Both a Will and a trust can be used to distribute some or all your estate assets after your death.
A Last Will and Testament is a legal document that outlines how you want your assets to be distributed upon your death. It allows you to specify beneficiaries for your estate assets and designate an Executor to manage the distribution process. Wills are relatively straightforward to create and modify, making them a popular choice for many individuals.
On the other hand, a trust is a legal arrangement where a Trustee holds and manages assets on behalf of beneficiaries according to the terms specified in the trust agreement. Trusts offer more flexibility and control over asset distribution, allowing you to bypass probate and potentially minimize estate taxes.
Factors to Consider When Choosing a Will or Trust
Most people execute a Will as their first estate planning document. Although that Will may continue to act as the foundation of an estate plan, a trust may be added as the individual’s estate planning goals becomes more complex. While it is always best to consult with your estate planning attorney when making important decisions such as whether to use a Will or trust to distribute your estate assets, there are some common factors to consider, such as:
- Complexity of Your Estate: If your estate is relatively simple, with few assets and straightforward distribution instructions, a Will may suffice. If, however, you have complex assets, such as business interests or multiple properties, a trust can provide more comprehensive asset management and protection.
- Privacy Concerns: Wills are typically subject to probate, a court-supervised process that makes the contents of the Will public record. If you value privacy and wish to keep your estate affairs confidential, a trust may be preferable since it allows assets to be distributed privately without court involvement.
- Probate Avoidance: Probate can be a time-consuming and expensive process, often delaying the distribution of assets to beneficiaries. By placing assets in a trust, you can avoid probate altogether, ensuring a smoother and more efficient transfer of wealth to your heirs.
- Asset Protection: Trusts have the ability to offer greater asset protection compared to Wills. Assets held in a the right type of trust are shielded from creditors and legal challenges to a greater extent, providing added security for beneficiaries.
- Incapacity Planning: While a Will can effectuate the complete distribution of your estate assets after you pass away, a Will cannot help you with incapacity planning becomes the terms of your Will only become relevant after your death. Conversely, in addition to facilitating asset distribution after death, trusts can also be used for incapacity planning. If you become incapacitated and unable to manage your affairs, a successor trustee can step in to handle your assets according to the trust’s instructions, avoiding the need for court-appointed guardianship.
- Tax Implications: Both wills and trusts have tax implications that should be carefully considered. Estate taxes, inheritance taxes, and income taxes can vary depending on the structure of your estate plan and the jurisdiction in which you reside. Certain specialized trusts, however, are designed to help minimize the tax consequences associated with the transfer of wealth. Consulting with a tax professional and your estate planning attorney is advisable to minimize tax liabilities and maximize the benefits for your beneficiaries.
If I Establish a Trust, Do I Still Need a Will?
If you ultimately decide to incorporate a trust into your estate plan to distribute your estate assets, do not make the common mistake of thinking that your Will is no longer necessary. You should keep a “Pour-Over” Will in place even if you plan to rely entirely on a trust to distribute your estate assets after you are gone.
While significant assets may be successfully transferred into the trust you create prior to your death, there is always a possibility that you overlooked assets or that you acquire assets just prior to passing away that are not transferred into the trust prior to your death. In fact, personal items, vehicles, less valuable holdings, day-to-day banking accounts, and other less valuable assets are frequently left out of a trust. These unaccounted-for assets could lead to unintentionally leaving behind an intestate estate. That, in turn, might result in the need to open a formal probate of your estate after you are gone. If probate avoidance was one of the benefits you sought when you established a trust, leaving assets out of the trust will significantly diminish this benefit. To prevent that from happening, a Pour Over Will is necessary to direct all assets not previously included in the trust to be “poured over” into the trust after you pass away. Essentially, your Pour Over Will acts as a back-up method to ensure that all your estate assets make their way into your trust after your death.
Ultimately, the decision to use a Will or a trust to distribute your estate assets depends on your individual circumstances, goals, and preferences. Before making your decision be sure to consult with an experienced estate planning attorney.
Do You Need Help Deciding Whether to Use a Will or Trust?
For more information, please join us for an upcoming FREE seminar. If you need assistance deciding whether to rely on a Will or trust to distribute your estate assets, contact our estate planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
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