Most people want to do all they can, not only during their lifetime but beyond, to help their loved ones. Estate planning provides peace of mind for that person and their family members by establishing who will manage the estate and how assets of the estate will be divided. Many equate estate planning with writing a will, and that is certainly one important aspect of estate planning. A wide variety of trusts are also designed to protect and distribute estates. Good estate planning may include a will as well as one or more trusts.
Both wills and trusts identify the party who will be responsible for carrying out the expectations outlined within each document. Both are legal documents, which means they are enforceable. Both documents identify beneficiaries and explicitly state how the estate’s assets are to be distributed.
More people are familiar with the function of a valid will, which designates the beneficiaries of an estate and its executor, the person responsible for administering the estate as planned. An important aspect of a will is that it does not go into effect until after the death of the testator (who then becomes known as the decedent). Another crucial difference is that a will must be probated, a court proceeding which verifies the validity of the will. The administration of the estate may be independent, which requires little court supervision, or dependent, which requires close supervision by a probate judge.
By contrast, a trust is created to manage assets and to make important decisions while the estate planner is living. Instead of naming an executor, the estate planner, in this case a trustor, identifies a trustee to become legally responsible for the estate. That trustee, who may also be the trustor, makes decisions on behalf of the estate and beneficiaries in order to safeguard the estate. A trust is helpful for the trustor should she or he become mentally incapacitated in some way. For example, someone with a long family history of dementia may create a trust, so that assets and beneficiaries are protected if the trustor is unable to manage the estate in the future. Another key difference is that a will is filed in court and is therefore a matter of public record, making its contents viewable to anyone. The contents of a trust remain private, however, since a trust is not a matter of public record.
While different types of trusts serve specific purposes, such as a special needs trust or a charitable trust, they all function similarly to limit when and how beneficiaries may access assets, especially important when beneficiaries are young. Perhaps the most important difference between a will and certain types of trusts is that trusts do not require the probate process to verify their validity in court. In addition, a trust may protect family members who suffer future financial hardship. If a beneficiary were to declare bankruptcy or be sued, the trust protects the assets from creditors’ claims. A trust is also more difficult to challenge in court than a will.
Importantly, these two legal documents are not mutually exclusive. Estate planning may well result in the creation of both a will and one or more trusts, which together protect an estate. Given the number of options and the complexities they entail, working alone may feel quite overwhelming. Fortunately, estate planning attorneys have the knowledge and experience to create an estate plan which best meets the needs of the estate and its beneficiaries, now and in the future.
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