Creating an estate plan enables an adult to provide instructions for what should happen to their assets when they pass away. Two primary components of an estate plan make this possible – a will and trusts.
These are foundational elements of estate planning, each serving distinct roles in the management and distribution of assets after one’s passing. Understanding the differences between these two tools can help individuals make informed decisions about protecting and allocating their assets to beneficiaries effectively.
Role of wills
A will is a legal document outlining how a person’s assets will be distributed upon death. It can also appoint a guardian for minor children and an executor to manage the estate until its final distribution.
Wills are often seen as the bedrock of estate planning, offering a straightforward way to specify beneficiaries for assets. They come into effect only after one’s death and must go through probate, a legal process that can be time-consuming and public.
Despite these drawbacks, wills are essential for those who wish to ensure their assets are distributed according to their wishes. This is especially true for personal items and heirlooms that hold sentimental value.
Role of trusts
Trusts offer a more complex structure for managing assets, providing benefits like avoiding probate, managing tax implications and offering more control over when and how assets are distributed. There are various types of trusts, but they generally allow for more immediate, private and often more tax-efficient distribution of assets than wills.
Revocable living trusts allow individuals to retain control over their assets during their lifetime while specifying how these assets should be managed and distributed after their death. Irrevocable trusts require the creator to relinquish control of assets in the trust in exchange for tax benefits and protection from creditors.
Important consideration
Deciding whether assets should be included in a will or a trust is crucial when planning an estate. Duplicating assets in both can lead to confusion among beneficiaries and may cause potential legal challenges.
Generally, high-value assets requiring detailed distribution instructions or assets intended to bypass probate should be placed in a trust. Personal belongings and specific items intended as gifts can be effectively handled through a will.
By understanding the unique roles and benefits of wills and trusts, individuals can create a comprehensive estate plan that offers peace of mind and security for their loved ones. Seeking legal guidance may make it easier to determine how to handle specific assets in an estate as efficiently and effectively as possible.