Wills vs. Trusts – What Do I Need?


Do you need a trust as part of your estate plan? In many respects, a will and a trust can both transfer assets to beneficiaries. A trust, however, can provide better protection and control after death. You may assume that trusts are just for the super-wealthy but having a lot of wealth is just one of many reasons why setting up a trust can be a smart financial strategy. There are many types of trusts, each with their own purpose. Some trusts are revocable, allowing you to keep control of your assets and make changes to the trust at any time. Others are irrevocable, requiring you to give up control of your assets during your lifetime. Trusts may hold real property, investments, bank accounts, and family businesses among other assets. Here are a few of the top reasons why you may consider setting up a trust.

-Trusts avoid probate. Both revocable and irrevocable trusts bypass the probate process. Probate is the court process that transfers ownership of your assets to your beneficiaries after you die. Most people want to avoid probate because it is time consuming and expensive. When you put property into a trust, the trust owns the property, not you, and trust property doesn’t go through probate. This can save a huge headache, as well as a lot of cost, for your beneficiaries.

-Trusts manage your assets. Trusts serve the purpose of keeping control of your assets even after your death. If your assets are passed to beneficiaries through a will, the beneficiaries receive the assets when you die. If instead you use a trust, you can set it up so that beneficiaries receive their inheritance over time, when they reach a certain age, or when they meet other conditions. The trustee you name in the trust document controls the property until it is all distributed to the beneficiaries. This is useful for people who want to give their property to beneficiaries who cannot yet manage it themselves.

-Trusts help during incapacity. In a living trust, you can give your successor trustee the power to manage trust property if you become incapacitated. This provides comfort to those who anticipate being ill or who are reaching the end of life. Upon incapacity, the successor trustee will manage the property for you, in your best interest. If you then become able to manage your affairs again, you can take back control of your property. Durable powers of attorney (for healthcare and finances) are additional measures to deal with incapacity.

-Some trusts will protect assets from creditors. Some irrevocable trusts can shield assets from creditors during your lifetime. When an irrevocable trust is set up, you give up all control of the property you put into that trust. Because you no longer own the property, your creditors cannot go after it. These trusts work well for people who have money or assets to put away and are worried about someone gaining access to them. For example, some assets can be protected from lawsuits by putting them into an irrevocable trust.

-Certain trusts can preserve disability benefits for a beneficiary. If a beneficiary is eligible for government disability benefits (SSI payments), it is possible that those benefits could be lost if the beneficiary inherits assets in his or her name. Whereas a properly drafted trust can be used to hold assets for the beneficiary while still allowing the beneficiary to qualify for disability benefits.

-Trusts are private. If you prefer information about your estate not be available to the public after you die, you can use a trust to keep it private. Probate processes are available to the public, so information about property that goes through probate is publicly available. In contrast, trust property stays private since it never goes through probate. Only your trustee (and possibly the trust’s beneficiaries) will receive information about the trust property.

Trusts can provide peace of mind that the legacy you want to leave is firmly in place. If you think a trust makes sense for you, be sure to talk with a qualified estate planning attorney who can help create your legal trust document and provide guidance on properly funding the trust. Your CPA can work alongside your attorney to assist with any trust or estate tax filing requirements and estate planning questions that arise.

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