When it comes to estate planning most of us are at least familiar with the terms “will” and “trust.” However, it’s important to understand how they work. One difference is that a will goes into effect after death while a trust can be used to distribute property before or after death.
A will is a legal arrangement that has several important functions and usually requires at least one witness. (State requirements vary, for instance, two witnesses are required in Arizona.) A will is used to designate your chosen guardian/s for any minor children. A will gives instructions on how you wish your assets to be distributed upon your death. It names beneficiaries of your estate and what they are to receive. A will allows you to choose an executor, a person responsible for overseeing the distribution of your assets.
The important thing to remember is that a will is subject to probate. This court process goes into the public record, determines the validity of the will, considers any objections and pays any remaining creditors. Probate can take several months—or even longer if you die without a will.
A trust is a relationship in which an individual assigns their assets through another entity, called the “trustee.” The trustee is often another individual, a bank or an attorney, and they have the responsibility of transferring title of the assets to the trust’s beneficiaries. Usually, two important goals of a trust are to keep the arrangement private and avoid probate.
A trust, however, doesn’t allow you to name a chosen guardian for your minor children, dictate funeral arrangements or determine who gets personal property items not specifically named in the trust. This is why a trust is almost always accompanied by a pour over will.
Not everyone needs a trust, but it’s helpful if, for example, you have minor children who will be receiving your assets when they become adults because a trust can specify requirements that must be met before assets will be transferred to them. A trust is also commonly used to assign assets to a charitable organization.
Remember, wills and trusts aren’t just for the wealthy—just about everyone has assets of one kind or another. These estate planning tools help you dictate how and when they are to be distributed. It’s important to get professional help that may include an attorney, and it doesn’t have to be an expensive process.
Please contact us if you need help with setting up or reviewing your estate plan.