Wills v. Trust - Advantages and Disadvantages
Many details must be considered when determining whether you should distribute your assets through a will or put those assets into a trust. There are a number of differences between wills and trusts. A will is a legal document that directs the distribution of assets through probate. A trust is a legal arrangement whereby a trustee holds possession of your money and/or assets so that those assets can be utilized at a later date either by you or your future heirs. The two main types of trusts are revocable and irrevocable trusts. A revocable trust, also known as a living trust, is created during your lifetime and can be revoked, closed, or modified at any time. An irrevocable trust cannot be revoked or modified but may be beneficial because they can minimize taxes, protect assets, and provide for a child or dependent. Both wills and trusts can be effective estate planning tools, but each has its own advantages as well as disadvantages.
The first advantage of utilizing a will is that wills are typically less expensive and easier to set up than a trust. If your estate is small, the costs of creating a trust may surpass the savings of avoiding the probate process. Moreover, wills require court supervision of an estate so if you are concerned about whether your assets will be distributed according to your wishes, a will may provide you with some additional safeguards.
In the same regard, a disadvantage of utilizing a will is that it must be probated. While court supervision is sometimes beneficial, it can also make the process costly and more time consuming, particularly if you have a large estate. Additionally, probate is a public process that allows anyone to see what your estate was when you died, how much the estate was worth, and those who received your assets. Legal fees, executor fees, inventory fees, and other expenses must be paid before the assets can be fully distributed to your heirs. If you own property in other states, your estate may also be subjected to multiple probates, each one according to the laws in that state.
A benefit of putting your assets into a trust is because trusts do not go through the probate process. More often than not, using a trust to pass on assets can transfer ownership faster than a will. The probate process may be slower if your estate is large, if you left unclear instructions for distributing assets, or if you have assets in multiple states. Issues can also arise if someone contests your will to change how your assets are allocated, and, more importantly, unlike a will, a trust cannot be contested in probate.
Furthermore, trusts also allow you to have greater control over who will get your money and/or assets and can include instructions for when and how beneficiaries will receive the assets. You can also pass assets via a trust before your death.
Finally, for large estates, putting assets into a trust can help minimize the value of your taxable estate. With an irrevocable trust, you can get asset protection from creditors and possibly decrease your countable assets concerning Medicaid eligibility for long-term care.
The biggest obstacle with trusts is setting them up. Trusts are generally more expensive to prepare than wills and require the assets to be retitled in the name of the trust, which takes substantial time and money. If your assets are not retitled, those assets will go through probate.
Unlike irrevocable trusts, revocable trusts do not offer any specific estate tax benefits or asset protection, so creditors are still able to reach your assets.
Your life circumstances will help you determine if you should utilize a will, trust, or a combination of both to distribute your assets. It is also important to keep in mind that whatever process is used mostly affects the loved ones that are still living. Having an effective estate plan allows those who are handling the distribution of an estate to do so without additional stress and expenses during this already difficult time.
Cozza Law Group Business Law Blog
