Should I Have A WILL or a TRUST?

Do you need a WILL, a TRUST, or both? A lot of people think a trust is something you set up to save on taxes or protect your assets from creditors or lawsuits. While some trusts are designed for those purposes, that’s not why most families create one. For the vast majority of people, a trust isn’t about taxes or lawsuits at all. It’s about making things easier for your loved ones after you’re gone. The truth is, everyone needs a will. Not everyone needs a trust. Understanding the difference can help you decide what’s right for your family.

Will vs Trust: Why Everyone Needs a Will

A will is the foundation of your estate plan. It allows you to take inventory of your assets and decide who should receive them after you pass away. Instead of leaving those decisions to the courts, you can put your wishes in writing.

Your will also lets you name an executor. This is the person responsible for carrying out the instructions in your will after you’re gone. Once you pass away, your executor presents your will to the court and agrees to carry out your wishes to the best of their ability. If approved, the court issues what’s known as “Letters of Testamentary.” These documents give your executor the legal authority to act on behalf of your estate, pay debts, and distribute assets according to your wishes.

Choosing the Right Executor

Choosing the right executor is an important decision. This person assumes a fiduciary responsibility, meaning they’re legally required to act in the best interests of your estate and beneficiaries. It’s a job that requires honesty, organization, and time. It’s usually better to choose someone who is both willing and able to handle the responsibility.

Tip: Always name one executor and a successor, rather than several co-executors, to prevent complications. 

Why You Should Name a Successor Executor

Think of this person as your backup. If your first choice passes away before you do or decides they don’t want the responsibility, your successor executor can step in instead. Without a backup, the court may have to decide who should serve as executor. If no family member is willing or able to serve, the court may appoint someone to administer your estate.

If You Have Minor Children, Name a Guardian

If you have children under the age of 18, your will lets you name a guardian. If something were to happen to both you and your spouse, your will tells the court who you want to raise your children. Without those instructions, the court has to make that decision for you.

SEE ALSO: How Much Money Can I Give To Kids Without Paying Tax?

What Happens If You Die Without a Will?

For many families, a will is enough to accomplish everything they need. But what happens if you never create one? This is called dying intestate. When someone dies without a will, state law determines who receives their assets. The court (not you) decides how your estate is distributed. That outcome may not match what you would have wanted.

In most states, your will should be signed, witnessed by two people, and notarized. Taking those extra steps helps make sure your wishes are followed and can spare your loved ones unnecessary stress, confusion, and expense during an already difficult time.

What Happens After Someone Dies With Only a Will?

Any assets that pass through the will generally have to go through a legal process called probate. Probate is the court-supervised process of settling someone’s estate. During probate, the executor presents the will to the court, takes an oath to carry out its instructions faithfully, and receives the legal authority to begin administering the estate.

The executor is responsible for paying outstanding debts, handling any required paperwork, and distributing the remaining assets to the beneficiaries named in the will. The court oversees the process to help make sure everything is handled properly.

Why Some Families Want to Avoid Probate

Probate serves an important purpose, but it also has a few drawbacks. First, it’s public. That means your will becomes part of the public record. In many cases, information about your estate and who receives your assets can be accessed by others. Second, probate can take time. Depending on the circumstances, the process often lasts six months to a year, and sometimes even longer.

For many families, that’s reason enough to start looking at another option.

What Is a Revocable Living Trust?

When you hear someone say, “My house is in a trust,” or “My accounts are in a trust,” they’re usually talking about a revocable living trust. This is very different from the more advanced trusts people use for estate tax planning or asset protection. With a revocable living trust, you stay in control. You can change it, amend it, or even revoke it at any time.

Let’s say you have a bank account titled:

John Smith, Individual

Instead of owning that account in your own name, you retitle it to:

The John Smith Revocable Living Trust

Why a Revocable Living Trust May Help Your Family

One of the biggest benefits of a revocable living trust is what happens after you pass away. Think of the trust as its own legal entity. When you die, the trust doesn’t. Instead of waiting for probate, your successor trustee immediately steps in and manages the assets held inside the trust.

They can:

• Access bank accounts
• Manage or sell your home
• Pay bills
• Settle your affairs
• Distribute assets according to your instructions

And they can often do all of this without going through probate. It can save time, reduce expenses, and keep your affairs private. Unlike a will, which becomes part of the public record during probate, the terms of a living trust generally remain private.

What Is a Pour-Over Will?

Even if you create a revocable living trust, you’ll usually still have a will. This is often called a pour-over will. A pour-over will says that if you forgot to transfer certain assets into your trust during your lifetime, those assets should “pour over” into the trust after your death. That allows your successor trustee to manage those assets according to the terms of the trust and can help streamline the probate process.

What Is a Testamentary Trust?

Unlike a revocable living trust, a testamentary trust isn’t created while you’re alive. It’s created through your will after you pass away. This type of trust is especially helpful if you have young children. If you leave money directly to a minor, the court may have to decide who manages those funds and what type of account should be used. In many cases, the money ends up in a Uniform Transfers to Minors Act (UTMA) account. The challenge is that UTMA accounts generally give the child full control once they reach the age of majority, which is often 21, depending on state law.

Many parents don’t feel that’s the right age for a child to receive a large inheritance. A testamentary trust gives you more flexibility. Instead of giving your child complete access at 21, you can decide when and how they receive their inheritance. For example, you might instruct the trustee to distribute the money when your child turns 30 or 35. That gives you more control and provides additional structure long after you’re gone.

A Trust Can Also Protect You During Your Lifetime

Another major reason retirees create a revocable living trust is to plan for incapacity. A will can’t help if you’re still alive but unable to manage your finances. Your trust can include instructions for what happens if you become incapacitated and can no longer make sound financial decisions. For example, if a doctor determines that you’re no longer able to handle your financial affairs, your successor trustee can immediately step in.

They can:

• Pay your bills
• Manage your investments
• Protect your assets
• Handle your financial affairs

Without those instructions, your family may need to petition the court for guardianship or conservatorship before they can act on your behalf. That process can take time, cost money, and add stress during an already difficult situation.

What About Irrevocable Trusts?

An irrevocable trust is very different from a revocable living trust. When you transfer assets into an irrevocable trust, you’re giving up ownership and control. You can no longer treat those assets as your own. Because of that, irrevocable trusts can sometimes provide estate tax benefits or help protect assets from creditors.

But there’s an important trade-off. You’re giving up control of those assets. For most families, that isn’t necessary. If your estate is worth less than approximately $15 million as an individual or $30 million as a married couple, you generally won’t need an irrevocable trust for federal estate tax purposes.

SEE ALSO: 6 BIG Retirement Mistakes (And How To AVOID Them)

Will vs Trust: Which One Do You Need?

So, when it comes to will vs trust, which one is right for you? Everyone should have a will. A will allows you to name an executor, choose a guardian for minor children, and make sure your wishes are carried out. A revocable living trust builds on that foundation. It can help your loved ones avoid probate, keep your affairs private, and provide a plan if you become incapacitated. A testamentary trust gives parents additional control over how and when minor children receive an inheritance. And while irrevocable trusts have their place, they’re generally reserved for specialized planning rather than the average family.

How Paces Ferry Wealth Advisors Can Help

At Paces Ferry Wealth Advisors, we work with families to help them understand how wills, trusts, retirement accounts, beneficiary designations, and financial planning all fit together. We can help you understand your options and coordinate with your estate planning attorney to make sure your overall financial plan reflects your goals. If you have questions about will vs trust or want to make sure your estate plan aligns with your retirement plan, contact Paces Ferry Wealth Advisors to schedule a conversation.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.