Estate planning is an important subject that almost everyone—but especially older people—needs to address. Many believe that estate planning is for those with substantial means. However, estate planning determines how an individual’s assets are preserved, distributed, and managed, so even people with assets limited to a residence, bank accounts, and a retirement plan need to form a plan.
Trusts and wills are two key components of estate planning:
- Trusts protect assets and direct the use of the assets in accordance with the owners’ intentions during their life and after their death.
- Wills are similar, but they go into effect upon the death of the owner.
In this blog post, we’ll further examine the differences between a will and a trust, their advantages and disadvantages, the ways both can provide for your heirs, and the need for either or both.
What Is a Will?
A will is a legal document that provides instructions on the distribution of assets to designated heirs and beneficiaries after the death of the owner. A will often includes:
- Instructions for decisions that need to be made after the owner’s death
- The appointment of the personal representative of the will, or a designated appointee to enact the will
- Guardians of minor children
- Directions for the funeral and burial
- Directions to create a trust and appoint a trustee to hold the assets for specified heirs until they reach a specific age
- In the case of a pour-over will, your will references your trust as the recipient of your probate estate, if any
Ultimately, a will provides a legal map to help guide the survivors in handling the estate in order to lessen the possibility of disputes and ensure they are taken care of.
If a will is not established and the individual passes away, they do so in intestacy. Dying intestate refers to the death of someone without a will or where a will is proven to be invalid. In this case, distribution of assets, handling of debts, and the care of minor children and dependents is determined by the intestacy or probate law of the state in which the deceased was domiciled. Typically, all assets are distributed equally among the heirs, per stirpes.
A will can be changed with the creation of a codicil. You can change the personal representative, the beneficiaries, the guardians of minor children or your funeral plans. The codicil should be kept with the original will.
What Is a Trust?
A trust is the legal arrangement that details how assets are transferred to the beneficiaries, the terms for the trustee’s management of the assets, and the final disposition of the assets. Unlike wills, trusts are effective upon the transfer of the assets.
There are two primary types of trusts:
- A living trust is created during the owners’ (also known as grantor) lifetime.
- A testamentary trust is created after the death of the owner and includes directions in the deceased owner’s will.
During their lifetime, an owner can create revocable trusts that can be altered, amended, or terminated at any time. A grantor can also create an irrevocable trust, which has strict limitations on what can be altered once it is established. However, a primary benefit to this type of trust is that the principal from the trust assets is not included in the owner’s taxable estate. This can protect the assets in the trust from the grantor’s creditors.
Keep in mind that creating a trust might not be worth the cost if the grantor’s assets are limited. Creating and maintaining a trust entails legal expenses and costs related to transferring property titles to the trust. Additionally, there are expenses associated with ongoing asset management and legal compliance.
Should You Choose a Will or a Trust?
What do experts recommend when it comes to choosing between a will or trust?
When estate planning, it is generally advised that everyone creates a will. Regardless of the size of the estate, a will is often relatively inexpensive and an efficient choice. A will allows the estate to avoid intestacy with costly and potentially contentious legal proceedings that could require identifying and appointing an estate administrator responsible for allocating the remaining assets. However, a will could still have a probate process, that may take a long time and incur additional expenses. It also provides an arena for a family fight which can drive the cost of settlement up.
Trusts, on the other hand, tend to be better suited for larger estates due to the associated cost. Once a probatable estate exceeds $500,000, the trust would provide a less expensive settlement process than the will. If a grantor creates a trust, they would also accompany it with a pour-over will. Assets outside those included in the trust could become subject to intestacy laws or the will. Additionally, grantors who create both a will and a trust can benefit from swift asset transfers and confidentiality with regards to sensitive assets and directives.
Ultimately, thoughtful estate planning is essential for the future of an owner’s heirs. This decision depends on the value of the owner’s assets, age and capabilities of the heirs, family dynamics, tax planning considerations, and complexity of bequests (or assets given).
Make the Right Choice with Crews Banking
Preserving and enhancing your assets today benefits you tomorrow. Three of our banks—Charlotte State Bank & Trust, Crews Bank & Trust, and Englewood Bank & Trust—offer free estate planning guidance and advice from a trust officer’s perspective. We provide professional investment management services, estate administration services, and trust administration which gives us the knowledge and experience to help you
We are happy to help you with your questions about whether a will, a trust, or both are right for you. Give us a call and we’d be happy to help you make the best decision.
About the Author
Executive Vice President, Director of Trust and Wealth Management
Lory manages the Trust and Investment Management Services division to help coordinate the diverse services provided. She has been involved in banking and finance since 1990. Her management and operations experience gives her the resources necessary to lead a team of professionals offering banking and trust products and services with a high degree of personal attention.
She is a graduate of the Florida Bankers Association’s Graduate School of Banking, Florida Bankers Association’s Trust School, and Leadership Charlotte Class of 2003. In addition, Lory has earned both the Florida Certification and National Certified Guardian designations. She serves on the Executive Committee of the Florida Bankers Association’s Trust and Wealth Management Division, volunteers with Tidewell Hospice and has served as a member of the Board of Directors of United Way of Charlotte County.