Wills and trusts are estate planning tools that can help ensure your hard-earned assets are protected during your lifetime and transferred to your designated heirs after you die.
If you die without a will, called intestate, the state oversees how your assets are distributed based on a set formula, which could negatively impact a surviving spouse or children. If you have minor children, a court will appoint a guardian.
What is in a will?
Testamentary wills are the most common type of estate-planning tool. A will is a legal document stating how you want your affairs handled and belongings transferred after death. It typically contains:
- Lists of assets and debts
- Family heirlooms
- Safe-deposit box contents
- Real estate and other property
- Vehicles
- Instructions for distributing items to family, friends or charities
Life insurance policies and retirement accounts live outside a will. The proceeds of those assets go directly to named beneficiaries. You designate an executor to settle your estate’s outstanding debts and distribute the contents included in the will.
What is in a trust?
While a will must go through a public probate process, trusts offer privacy and other significant benefits. People with considerable assets can streamline the process by transferring property immediately after their death. There are two basic types of trusts:
- Revocable trust: You retain control over the property and can change, revoke or terminate the trust at any time. Primarily used for asset management, tax planning and avoiding probate, you can be the creator, beneficiary and trustee.
- Irrevocable trust: Commonly known as an asset protection trust, you cannot make changes or access the property, which is protected from creditors and lawsuits. You must designate another individual as trustee to manage the contents. This is a popular tool for Medicaid planning.
Funding a trust involves transferring property, including bank accounts, insurance policies, real estate holdings, investment accounts and business interests.
Estate planning is not an either/or scenario
While almost everyone should at least have a will in place, some individuals can greatly benefit from having both a will and a trust. Each person’s plan is unique, and it’s advisable to work with an experienced estate planning attorney who also specializes in wealth preservation and tax planning.