Wills and trusts are legal instruments used to manage an individual’s assets. They operate quite differently. A will becomes effective only after one’s death, while a trust can be active during an individual’s lifetime, after death or both.
Deciding whether a will or trust is more suitable for an individual’s circumstances involves considering factors such as the complexity of the estate, privacy concerns and the need for probate. While they can sometimes function in tandem, understanding when each option is better depends on individual circumstances and specific estate planning goals.
A will, also known as a testament, is a legal document that relays an individual’s wishes regarding the distribution of their assets after death. It appoints an executor to manage the estate and ensure that the will’s directives are followed.
Wills are relatively straightforward to create and can cover a wide range of assets. They are particularly suitable for individuals with simpler estates and those who are unconcerned about the probate process.
The role of trusts in estate planning
Trusts are legal arrangements wherein a trustee holds and manages assets for one or more beneficiaries. Trusts are categorized into either revocable or irrevocable. The primary difference is that revocable trusts can be changed, but irrevocable trusts can’t, absent the approval of the court and/or all beneficiaries. Some trusts can provide benefits such as tax savings, protection from creditors and probate avoidance.
Trusts are particularly beneficial for those with larger or more complex estates or individuals who wish to maintain privacy because trusts aren’t public records. Trusts are also ideal for those who want to distribute assets over time, such as to minor children, or who want to avoid the probate process, which can be time-consuming and costly.
There’s no one-size-fits-all solution to estate planning. Setting up an estate plan with the assistance of someone familiar with these matters may relieve some of the stress associated with tailoring a plan to one’s unique needs. Ultimately, the goal is for the creator to make their wishes known so their loved ones can follow the plan when the time comes.