Taking the first step to plan your estate can be challenging. There will be a lot of important decisions that will need to be made from the get-go. One of the first questions that you will have to ask yourself is what kind of estate plan is right for you. A thorough estate plan will include either a will or a trust, depending on each person’s preferences and financial situation.
Are trusts only for the wealthy? What’s the difference between the two? Most importantly, which is right for you? Here is an overview of the key differences between wills and trusts.
Wills don’t avoid probate
Wills are typically a more affordable option in the beginning, but can end up costing thousands once your estate goes through probate. Wills do not avoid probate or offer asset protection. Probate is time-consuming, costly and can take an emotional toll on loved ones. However, without a will, the probate process can take even longer to sort out beneficiaries, taxes and pay off debts.
A few benefits are that wills allow you to appoint an executor of your estate so that you have control over who will oversee the probate process. In addition, if any of your beneficiaries have special needs, suffer from substance abuse issues or will inherit out-of-state real estate, a trust may be a better option.
Properly funded trusts protect assets and offer more privacy
Do you have a child who is a spendthrift? A future beneficiary who is going through a divorce? Each client will have different financial and family situations, but trusts can typically accommodate each individual’s needs. Trusts can protect a decedent’s assets such as if they ever go through a divorce or file for bankruptcy. Revocable living trusts can also be amended or restated if there are any significant life events that will affect the plan.
Without a trust, your inheritance may suddenly end up in the hands of an unintended beneficiary such as a creditor or bitter ex-son-in-law. While trusts may incur greater costs to establish initially, they can spare loved ones the expense of probate and keep the decedent’s affairs privacy in the long run.
It’s not always easy to make the decision alone. Each state has different laws and boiler plate do-it-yourself estate plans can do more harm than good. Consulting with an experienced estate planning attorney may be able to help you to make the decision that is right for your family.