The average person doesn’t typically want to spend too much time thinking about his or her death, and for good reason. It’s all too easy for such thoughts to distract from the important task of living. Still, there are times when responsible adults simply cannot avoid the topic, particularly when it comes to planning for end-of-life concerns and estate asset distributions that need to occur after death. Have you given any serious thought to estate planning to ensure that your loved ones are cared for properly when you’re gone? If not, then estate planning should be on your list of things to do too. And where estate planning is concerned, the debate over strategies often comes down to the relative advantages and disadvantages of two important tools. Wills vs trusts – which one is right for you?
The Overview: Two Estate Planning Dynamos
If you’ve looked at any estate planning options, chances are that these two tools have been at or near the top of any list you’ve seen. The Last Will and Testament is the best-known planning tool used for estates, and has been popularized on the Silver Screen and television sets of homes around the world. And while trusts were long used by only the most elite and wealthy families, they too have gained new popularity in recent decades as they have been customized to fit a variety of different estate planning needs.
The will, of course, is a familiar instrument, and has a long history in estate management. It is, at its core, a declaration that can be used to ensure that your last wishes are known to your heirs. With it, you can designate your chosen heirs, rather than allowing those heirs to be defined by state law – as they would be if you were to pass away without a will. You can also use your will to declare your intentions with respect to how your children are cared for when you’re gone, and address a host of other concerns.
The living trust is less well-understood, but it too has a role to play in estate matters. With a trust, you can provide for an efficient settlement of your estate by assigning a trustee to oversee the distribution of your assets when you die. That can provide your heirs with a range of benefits, as this system of distribution negates the need for time-consuming probate. Trusts can also provide you with more options to control when and how assets are distributed.
When it comes to wills and trusts, the main issue most people confront is determining how to choose between the two option. While probate is an important and necessary estate settlement process, many Americans today are looking for ways to avoid the costs associated with that court-supervised system. And since asset protection has become more of a concern in recent years, tools like the trust have gained increased attention. Still, there are advantages and disadvantages associated with each of these important tools.
The Merits of the Will
Your Last Will and Testament covers only the property that is solely in your name. Bank accounts that contain transfer-on-death provisions, properties held in joint tenancy, trusts, and similar assets all transfer without the need for a will or probate. The property covered by your will is distributed as part of a court-supervised probate process designed to settle your debts and the estate. In general, wills offer many benefits:
- Wills can handle matters beyond financial concerns. For example, your will can be used to designate a guardian for any minor children you might have.
- Your will can be created for less cost than a trust.
- Wills are easier to change or completely revoke as well.
At the same time, wills do have some disadvantages. The primary one is the need for probate – although that can be avoiding in Michigan if your estate is small enough. Wills are often considered more vulnerable to challenge as well, and they provide no protection from creditors or tax liability. Finally, the settlement of a will through probate can sometimes take a year or longer to complete.
The Merits of the Trust
Trusts cover all the assets you have transferred to them. That’s an important thing to remember: your trust is worthless unless you take the steps necessary to transfer ownership of certain assets to the new entity. You also need to name a successor trustee to take over management of the trust when you die, and beneficiaries who will receive the benefits of the assets in the trust. Like a will, trusts offer many advantages for those who use them:
- With a trust, you can avoid many taxes, including the estate tax.
- You can use the trust’s increased flexibility to control when and how heirs receive their inheritance. For example, you can choose to give minor children only a portion of their inheritance when they reach adulthood, give them all their money, or only designate that money for certain purchases or expenses.
- Trusts can be used for heirs with special needs, and can even be customized to provide care for a beloved pet.
- Trusts avoid probate, since the assets are not legally owned by you.
On the downside, trusts are more difficult to revoke or alter, and cost more to set up than a will. There are also issues related to their management, and the need to file separate tax returns and meet other obligations. Still, they can prove useful for estate planning purposes.
Get the Help You Need
When it comes to the wills vs trusts debate, the choice of which to use can sometimes be difficult to make. At Biddinger & Estelle, PC, our estate planning and trusts experts have the experience you need to make sense of it all. We can help to evaluate your unique needs to determine which option will work best for your circumstances, and will work with you to ensure that you get the ideal tools and strategies in place to achieve your planning goals. If you’d like to learn more about how each of these powerful estate planning tools can help you plan for your legacy needs, then contact us at our website or call us today at (989) 872-5601.