A will is a legal document that states who you wish to have your assets after you pass away, and comes into effect upon your death. A trust is a legal entity that owns money and other assets and disperses them, or otherwise uses or manages them, per the trust’s directions for the benefit of the trust’s beneficiary. Both are common estate planning tools, but they serve different purposes and take effect in different ways.
Knowing whether you need a will (it’s a good idea to have one, even if your estate is modest) and what kind of trust you need depends on your current financial situation, whether you have minor children or dependents, and your financial goals. An experienced New Hampshire estate planning attorney can explain your options and help you choose documents that fit your goals and family situation.
What does a will do?
Wills are legal documents that state the individual’s wishes for distributing assets after they pass away. It nominates an executor, who files the will with the probate court and carries out the court-supervised probate process (probate is the process of legally transferring the assets of a deceased person to their heirs). A will contains instructions for distributing the property, but it cannot be carried out without probate.
A will can also name a guardian for the creator’s minor child or children, and any others that the individual had guardianship over, like a ward or a guardianship of an elderly relative.
Because wills go through probate, their contents generally become part of the public court record. The contents may include the names of the beneficiaries, the executor, and the value of the assets it names. Probate is also a public process, so when someone passes away, any curious party can learn about the deceased’s assets, heirship, and intentions.
Depending on the size of the estate, some assets distributed through a will may be subject to federal or state estate tax, but most estates fall below applicable thresholds.
What does a trust do?
Trusts are legal entities that hold property, money, and real estate. They are created by a grantor, who funds the trust and is overseen by a trustee who is responsible for the management and distribution of the assets in the trust, according to the grantor’s instructions, for the benefit of the trust’s beneficiary.
There are two types of trusts. Revocable living trusts can be amended by the grantor during their lifetime, giving the grantor some legal control over the trust’s assets. An irrevocable trust cannot be changed once it’s created, and the grantor no longer has legal control or ownership of its contents. In some situations, an irrevocable trust can provide protection against certain creditor claims, depending on its structure and funding.
A properly funded trust can bypass probate, which helps keep its terms private and allows assets to be distributed without court supervision. Whether trust assets are subject to estate tax depends on the size of the estate and applicable tax laws. In addition, the beneficiary and successor beneficiary can begin receiving benefits from the trust immediately, rather than waiting for the probate process to conclude.
How do I know if I need a will or a trust?
Everyone has an estate, even if it’s modest. Many estates go through probate unless steps are taken to avoid it, such as using trusts or beneficiary designations. The benefit of a will is that you have control over the distribution of your assets; absent a will, the probate court appoints an estate administrator who distributes your property according to state inheritance laws. Having a will also reduces the likelihood that your heirs will fight over your property after you pass.
If you have property you want to protect or want to leave an inheritance for someone, but only want the money spent in a specific way (like paying for college), a trust is the best option. The assets in a trust can only be used per its terms; anything bequeathed in a will can be used as the recipient wishes. Some trusts can also be used to manage assets during your lifetime, including planning for retirement or future care needs.
Many people have both a will and one or more trusts as part of their estate plan, using trusts to protect assets and provide specific support for certain beneficiaries.
Learn more about what a will vs. a trust means for your estate plan
Estate planning often involves more than a single document, and wills and trusts are designed to solve different problems. They serve two very different purposes, but both estate planning documents can protect everything you’ve worked so hard for.
The attorneys at Shaheen & Gordon can prepare a custom will, living trust, or both to ensure that your assets and family are protected if something happens to you. We can also create other necessary estate planning documents, like a power of attorney, and advise you on the appropriate amount of life insurance for your goals. To talk through your options and understand what approach makes sense for your situation, contact Shaheen & Gordon at (800) 451-1002 or contact us online.
