When creating an estate plan, you will likely run into the option of setting up a trust or a will - or both. This leaves many wondering what the best option is. Should you transfer your assets to a trust? Or should you spell out your wishes in a will? Or does it make sense to have both a trust and a will?
The answer: It all depends on the specifics of your situation and what your wishes are for after you pass.
In this blog post, we will provide a basic overview of a trust versus a will and give you general examples to think about as you put your plans together. To really figure out what will work best though, we highly encourage speaking with an estate planning attorney, as the process can be rather complex with many variables to consider.
Trusts and wills overview
Both a trust and a will allow you to designate your assets to a loved one after you pass. However, the way each functions varies greatly.
With a trust, the assets set aside are managed by another person or institution -- a trustee -- who then manages the asset on behalf of your loved one - named the beneficiary. If you are still alive, you can choose to be the trustee who oversees the asset, which is then passed over to a named trustee who continues to manage the asset after you pass. In both scenarios, the trustee is legally obligated to act in the best interests of the beneficiary.
On the other hand, a will is a legal document. This document spells out exactly how you want your assets to be distributed at the time of your death.
The benefits of a trust
Many people like the control a trust provides. For example, if you want to leave money to your grandchild with the intent to pay for their college education, by setting up a trust you can designate money specifically for that purpose. This means that you continue to have that control over how the money will be spent after you pass. Your grandchild will not be able to take the money and just do whatever he or she pleases with it. Rather, the money must be used toward their education and can even be distributed as needed to pay their tuition.
This is just one benefit, as another bonus to a trust is that it allows your loved ones to bypass the probate process. This process is when the courts finalize any debts and property is officially transferred to beneficiaries. This process is typically required with a will and can be time-consuming, taking literally months to transfer assets. A trust avoids this entire probate process.
Keep your affairs private with a trust
There are a number of different types of trusts, including trusts for charity, special needs trusts and generation-skipping trusts - to name only a few. What types of trusts you choose will be entirely dependent on your goals.
However - no matter what types you choose - since a trust does not go through probate, it does not become public record, which means you get the added bonus of privacy with a trust.