When thinking ahead to the future, one aspect that may be difficult but is necessary to consider is the distribution of assets after your passing. Even those who may believe they do not have “enough” assets should review their property and plan how it will be divided after you pass.
The division of assets can be done through different channels, such as a will or a trust. There are key differences between these options, so how are individuals supposed to know which one is the best for them?
Benefits and Downfalls of a Will
A will is a legal document stating where your assets should go after your passing, names guardians for any minors or animals you may have, and details about final arrangements. If a will is not in place, then the state will decide important factors such as beneficiaries and, if necessary, legal custody of minors or pets.
Benefits of a Will
Having a will is a great starting point for everyone. This document can include imperative information so that loved ones can’t guess your final wishes. Additionally, when making a will, you can appoint an executor. The role of the executor is to ensure that your wishes in your will are honored and upheld. When determining an executor, choose someone you trust and talk to them about your desires; that way, they can ask for any clarification about your requests if necessary.
An additional benefit of creating a will is the expedition of the legal process. Usually, having a will in place means fewer legal fees and court proceedings to attend, allowing beneficiaries to receive assets quicker. The time and financial savings allow your heirs to focus on remembering you and your life more than worrying about legalities.
Downfalls of a Will
While a will can clarify many things, it may not keep your loved ones out of court. If a will is challenged or does not cover specific assets, that property may go through probate. Another reason property may go through probate is because beneficiaries (or those not designated as a beneficiary) may question the will’s validity. If a family member was not included as a beneficiary, that person could become upset and try stop tactics, so the will is not fulfilled. Those named as beneficiaries could also not agree with your wishes and take the will for a judge to decide what should happen to your estate.
A will is also a public record. This could bring uneasiness to some as anyone would be able to search and see the amount and type of designated assets. Additionally, if you have significant funds that you don’t want the public to know about, then a will may not be in your best interest.
Benefits and Downfalls of a Trust
A trust is similar to a will in many ways as it outlines what property beneficiaries would receive after you pass. However, there are several other considerations to keep in mind if you are interested in creating a trust.
The following focuses on a revocable living trust, meaning that the wishes and designations can be changed at any time before your passing.
Benefits of a Trust
A revocable living trust can usually solve two downfalls of only having a will — a trust will usually allow beneficiaries to avoid probate, and because a trust is not filed with the court, it, therefore, does not become a public record.
Additionally, a revocable living trust allows you and beneficiaries to manage assets prior to and after your passing. This is crucial because your beneficiary could manage designated assets until you recover or pass if you were incapacitated.
Downfalls of a Trust
Just like a will, there are also downfalls of a trust. Those include:
- Cost — creating a trust is usually much more expensive than creating a will. Additionally, there is usually a cost associated with the management of the trust where there is usually not one with a will.
- Taxes — having a revocable living trust will usually not save the estate taxes. Also, many trusts do not have funds allocated for potential court fees, which could mean the distribution of some assets could still end with a judge’s decision and be public record.
Should I Have a Will if I Have a Trust?
It never hurts to have a will in addition to a trust. Probate may be necessary if an asset is not listed in a trust. Having general clauses in a will could help avoid that. As shared, designations for minor children and pets can be outlined in a will.