Here’s the gist of it: passing away without an estate plan, or "intestate", can create a heap of trouble for your loved ones. It can lead to years of legal battles in probate court, which is not the legacy most of us want to leave. So, what’s the solution? You need to create clear, legally-binding instructions for your estate. This could be in the form of a will or a living trust, or even both. But, don’t worry if it sounds too complex. You can start with the basics and add more layers as your wealth grows.
In simple terms, a will maps out your wishes after your death. This includes how your assets should be distributed, your funeral wishes, the care of any minor children or pets, organ donation, and who you want as the executor of your estate.
Trusts, on the other hand, can be a bit more complex. There are many types of trusts, each with a different purpose. The most relevant here is the revocable living trust, which can serve a similar role as your will. The big bonus? Assets distributed by living trusts skip the probate process. You just name a successor trustee to distribute your assets directly to your beneficiaries. This speeds up the legal process significantly and maintains privacy, reducing the likelihood of non-heirs coming forward to claim money or property.
Trusts also have better protection against court challenges and you can set up niche trusts for specific purposes, like charities or trust funds for your kids.
At first glance, the differences between wills and trusts are about when they become effective, whether they avoid probate, preserve privacy, provide guardianship for minors, their complexity and cost, their contestability, protection during incapacity, precedence, tax benefits, and asset protection.
So, should you go for a will or a trust? Both dictate what happens to your belongings after you die, but the choice depends on your circumstances. Trusts are more complex and expensive, so most people avoid them unless necessary.
A will is a better fit if you have an average net worth, aren’t worried about estate taxes or asset protection, don’t expect contention over your estate, and don’t want to create a trust fund.
A trust makes sense if you have a high net worth, worry about lawsuits, have a complex family, want to exclude specific people from your estate plan, and want to create a trust fund.
And yes, you can have both. You should create both if you meet the criteria for a living trust and have minor children or pets, have strong feelings about your final arrangements, and organ donation preferences.
In conclusion, everyone should have at least a will. When you’re young and broke, a simple will is enough. But as your net worth grows, so does the complexity of your estate. So, it’s a good idea to start with an online will or trust and consider hiring an estate planning attorney as your estate grows. And don’t forget, you should update your estate plan regularly, especially after major life changes.
