Wills and trusts are both vital estate-planning tools. They both protect your assets and help you provide for your heirs in precisely the way you want. There is certainly some overlap in what each of these legal documents does. Many people have both a will and a trust, with each meeting different needs for their family. And remember, thoughtful estate planning is for everyone–not just the super-wealthy
What Are The Differences Between a Will and a Trust?
A will and testament is a legal document that lays out your wishes for how your property and financial assets will be distributed after your death. It takes effect after your death and can also cover guardianship for minor children and other non-financial elements. Every adult can and should have a will, no matter their financial status. There are ways to avoid probate, which your lawyer can discuss with you.
A trust is a legal document that takes effect before you die. Unlike a will, it allows you to distribute assets before your death. Assets that already designate a beneficiary (like life insurance), are not part of a trust. When you create a trust, it’s administered by a trustee–usually yourself or one of your heirs. After your death, your trustee can transfer the property to your heirs without passing through the costly and time-consuming probate process.
What Are the Advantages and Disadvantages of Wills and Trusts?
A will is an essential estate management tool. It ensures that your wishes come through loud and clear after your death. Wills do have one drawback: they must go through the administrative process known as probate. During the probate process, an administrator reviews the will to confirm that it’s valid. The court inventories and assesses the property and ensures the estate pays taxes and covers debts before distributing assets. Probate fees can add up–taking money out of the pockets of the heirs. The probate process is also time-consuming and can take up to a year in more complex cases.
In the case of a trust, the main advantage is that it allows heirs to avoid the probate process as the trust property is not part of the probate estate. A trust can be revocable, which means it can be changed or removed at any time. This type of trust avoids the probate process but does not reduce estate or income taxes. An irrevocable trust permanently terminates your rights of ownership of the assets and transfers them to the trust. This type of trust can have tax benefits. Ask your estate attorney which type of trust makes the most sense for your family.
The caveats of creating a trust are that it’s more complicated than making up a will. Establishing a living trust with an attorney can cost $1000 or more. But for individuals with significant assets, it’s usually well worth the investment to avoid probate.
Unlike a will, not everyone needs a trust. However, experts recommend this legal protection if you have a higher level of financial assets, especially if you have significant real estate holdings. An experienced estate attorney can help you navigate the process and tailor the trust to meet your needs.
What Happens If You Don’t Have A Will?
Every adult, whether wealthy or lower-income, needs a will. Anyone 18 and over can make a will, and more and more experts are advising young people to put their wishes into a legal document. But an AARP survey showed that 2 in 5 Americans over 45 don’t have a will, a potential problem for their family and heirs. If you die without a will, you are “intestate” (as in without a testament). Each state has laws in place that determine how your assets will be distributed if you die without a will. In Virginia, the order is as follows as outlined by the commonwealth’s Court Clerk’s Association:
- All assets go to the surviving spouse unless there are children (or grandchildren). In that case, one-third goes to the surviving spouse, and the remaining two-thirds is divided among all children.
- If there is no surviving spouse, all assets pass to the children and their descendants.
- If someone has no surviving spouse or children, but their parents are alive, assets go to the parents. Siblings and nieces/nephews are next in line.
- State law sets out additional protocols if there are no survivors among close family.
While these state laws have fairness and common sense in mind, the bottom line is that every family is different. So each individual should take steps to make sure that they determine how their assets are distributed when they die. Dying without a will robs you of your agency and your role in the decision-making process. It can hurt surviving children (especially if a step-parent is in the picture) and cause financial problems for a surviving spouse.
If I Have A Trust, Do I Need A Will Too?
If you create a trust, you still need a will. It covers any property not included in the trust and makes sure all assets go where you want them.
Can I Create A Will Or Trust Online or Should I Hire A Lawyer?
When you create a will or trust, protecting your assets and your heirs is a top priority. As such, you want to make sure your legal documents are airtight. While online companies offer estate services on the cheap, there are many potential pitfalls to consider. And as a rule of thumb, the more assets you have, the more complicated drafting a will or trust becomes. Choosing a seasoned estate lawyer with a firm grasp of the state and federal laws involved is the best approach. The Laurel Brigade Law Group has extensive experience guiding clients through executing a will and trust. We’ll make sure your wishes come through clearly and pave the way for a smooth transition for your heirs.