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Wills and trusts both have benefits for estate planning purposes. Each has their own regulations and requirements. And it is not accurate to say one is better than the other. Whether you need one or the other or a blend of both documents depends on your assets and life circumstances.
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Wills and trusts both have benefits for estate planning purposes. Each has their own regulations and requirements. And it is not accurate to say one is better than the other. Whether you need one or the other or a blend of both documents depends on your assets and life circumstances.
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EstateCast aims to educate about estate planning and the differences between wills and trusts. Wills appoint a representative, distribute assets, and have limitations. Trusts provide more control over asset distribution and can avoid probate. Types of wills include last will and testament, pour-over will, joint will, mirror will, and holographic will. Living wills specify medical care preferences while alive. Types of trusts include revocable living trust, irrevocable living trust, and testamentary trust. Assets that can be put into a trust are listed, while some assets like life insurance policies and retirement accounts are not affected by a trust. Proper estate planning with wills and trusts has many benefits and should be done with the help of an attorney. Contact EstateCast for more information. Welcome to EstateCast, I'm Robert Newman. Our goal at EstateCast is to educate and inform you about estate planning and how it can give you and your loved ones peace of mind. Today's topic, the differences between wills and trusts. Wills and trusts have specific and quite different benefits for estate planning purposes. Each state has specific laws and regulations governing these legal documents. You can have both a will and a trust, however the information in each should complement each other. As a standalone, it is not accurate to say that one is better than the other. Whether you need one or the other, or a blend of both documents, depends on your assets and life circumstances. To guide your decisions, you should begin by assessing your situation, your goals, and your needs, as well as have an understanding of what wills and trusts do. Then along with an experienced estate planning attorney, you'll be able to identify the solution that best suits and protects your family. At the most basic level, a will allows you to appoint a personal representative for your estate. This person is commonly known as an executor. You should also name guardians for your children, your pets, and anyone else who is dependent on you. And of course, you want to designate where your assets go and specify any final wishes and arrangements. A will is only effective upon your death. It also has some limitations regarding the distribution of assets, and they are subject to a probate process, which occurs in court and is overseen by a judge. And as such, your will will be part of the public records. I like to say that if you have a will, probate serves three purposes. First, the court confirms your will is valid and should be followed. Next, they ensure that your wishes are followed. And finally, they authorize the legal transfer of control and ownership of your assets according to the terms of your will. So are there different types of wills? Why, yes, there are. The first and most popular that people hear is the last will and testament, which designates a person's final wishes about bank accounts, real estate, personal property, and who should inherit these items. A person's will outlines how to distribute possessions, whether to go to another person, another group, or to donate them to charity. It also deems responsibility to others for custody of dependents and management of accounts and other interests. Accounts can include digital assets with tangible or monetary value associated with them, such as PayPal accounts. The next will or next type of will is a pull of a will. This ensures that a person's remaining assets will automatically transfer to a previously established trust upon their death. This type of will should always accompany a trust. If a trust is created without a pull of a will, please ask questions. Then you have a joint will or mutual will. This is typically meant for married couples to ensure their properties are disposed of in an identical manner. A mirror will is two separate but identical wills which may or may not also be mutual. And then you have what's called a holographic or handwritten will. These are valid in about half the states and must meet specific state requirements. Authentication of this will type for acceptance of the probate process also varies by state. There's also a possibility that a court will not accept a holographic will. Even if you have limited assets, your best strategy is to have your will professionally documented and created by a professional estate planning attorney. A video of your final wishes does not create a valid will. We've seen that happen a number of times. Just taking a video does not create a valid will. Now, you've probably also heard of something called a living will. Living will. Well, unlike all the other wills we just talked about and we just discussed, a living will or an advanced directive, as it's also known as, is effective while you're alive. A living will or advanced directive specifies the type of medical care that you want or you would prefer if you cannot communicate your wishes. So unlike the other wills which are only effective upon your death, a living will, they talk about what happens while you're still alive. Trusts are somewhat more complicated than wills. And many different types of trusts can greatly benefit your estate and beneficiaries. Generally, a trust provides for the distribution and management of your assets during your lifetime and after death. Trusts can apply to any assets you hold inside of the trust and offer more control over when and how assets are distributed. There are many different types and forms of trusts, far more than wills. However, the creation of a trust is only the beginning of the process. You must fund your trust by legally transferring assets into it, making the trust the owner of those assets. This process makes creating a trust a bit more complicated to set up. However, a trust is often enacted to minimize and completely avoid probate, thus keeping personal records private. Avoiding probate is a huge advantage for some people and often justifies the additional complex legal work and associated costs with setting up a trust. There are nearly as many different types of trusts as issues to address in your estate planning, and each offers different protections. However, trusts generally fall into three basic categories. The first is a revocable living trust, and it is by far the most commonly implemented trust type. A person who creates and funds a trust is known as the grantor or trustmaker and will typically act as a directing trustee during their lifetime, and most often also the beneficiary of the trust while they're alive. So when you establish a revocable living trust, you have three roles, trustmaker or grantor, the trustee, and beneficiary. As such, you can undo the trust, you can change its terms, you can move property and assets in and out of the trust, out of its ownership, as you see fit. You can change who's going to be trustee after you. Revocable living trusts, however, are designed to switch to an irrevocable trust upon the death of the trustmaker. As soon as the trustmaker dies, that trust becomes irrevocable. So an irrevocable living trust is legally binding on the date of designation and allows very few provisions for change. The grantor funds the irrevocable living trust with property and assets, and the trust property is then under the care and control of the individual the grantor names as trustee. The grantor cannot change their mind and undo the trust. As a result, there are unique tax implications and other benefits to an irrevocable trust, including protecting a person's home and savings from the high cost of long-term care. These benefits can make relinquishing control worthwhile, but I want to repeat, once this irrevocable living trust is created, the grantor cannot undo it. As is typical with most things, nothing really good comes without some associated cost. And finally, you have a testamentary trust, and that is created from a provision within a will. It appoints a trustee to manage the deceased's assets. This trust is often used when the beneficiaries are minors or someone who is receiving public benefits. This type of trust is also used to reduce estate tax liabilities and ensure professional asset management. A testamentary trust is not a living trust. It only exists upon the death of the testator, the person who wrote the will. The executor of the deceased's estate would follow the terms of the trust, called administering the trust, as part of the probate process. The probate court will often have to supervise this testamentary trust, which can be very time-consuming and expensive. The things that you can put into a trust include stocks, bonds, mutual funds, money market accounts, brokerage accounts, patents, copyrights, royalty contracts, real estate, your house and rental property, any business interests you have, any notes payable to you, jewelry, precious metals, works of art and other valuable collections, and other personal, tangible items that you may have. Now, there are some assets that are not affected by the trust, and those include life insurance policies, payable on death bank accounts, retirement accounts, jointly owned assets, real estate subject to a transfer on death deed, which is something that we have here in the District of Columbia. These assets, although they're not affected by the trust, does not mean they have nothing to do with each other. For example, someone may want to make their trust the beneficiary of their life insurance policy. Why? Because they don't believe if they left the money outright to a beneficiary from the life insurance policy, that person, maybe their child, would handle the money well, and they would prefer the trust to manage the money for them. There's a host of other reasons, which we'll discuss another time, why you might want to do that, but that's just one example. There are many benefits that proper estate planning with wills and trusts can provide to you and your family, and there were some serious thought with an estate planning attorney. After that, it's important that you then properly draft your documents. I hope you learned something new today. As always, if you want additional information or to discuss your own estate plan, call us at 301-892-2713. That's 301-892-2713. Or you can reach us at our website, www.estatecast.com. That's www.estatecast.com. We know that life is precarious. Our goal is to give you peace of mind and help you live with your bags packed. We never know what tomorrow may bring, so let's get prepared. www.estatecast.com
