Wills vs. Trusts: Which One Is Right for Your Estate Plan?
hen it comes to preparing for the future, one of the most important steps anyone can take is developing a comprehensive estate plan. Individuals have a variety of tools at their disposal to structure their estate according to their wishes. Two of the most common tools are wills and trusts.
Both serve to manage and distribute assets, but each comes with its own set of benefits and considerations. The Jacobson Law Firm, P.C. in San Antonio, Texas, understands that estate planning can be an emotional and confusing process.
By gaining a clear understanding of the differences between wills and trusts, individuals can make informed decisions that align with their financial and personal goals.
Read on to learn more about the fundamental differences between wills and trusts, as well as how each can be used in estate planning. While each person’s situation is unique, the following information can help provide clarity on which option may be right for specific circumstances.
Whether an individual is just beginning to draft their estate plan or revisiting an existing plan, understanding the advantages and limitations of wills and trusts is essential.
What Is a Will?
A will is a legal document that outlines how a person’s assets and property should be distributed after their death.
It typically names an executor, someone responsible for carrying out the instructions in the will, as well as beneficiaries who will inherit the estate. In Texas, wills are commonly used to address the distribution of property, appoint guardians for minor children, and (less commonly) make funeral or burial arrangements.
A valid will must meet certain requirements under Texas law. For example, it must be written and signed by the testator (the person making the will) in the presence of two witnesses who aren’t beneficiaries. Once a will is executed properly, it becomes a legally binding document.
One of the key advantages of a will is that it provides clear instructions for the distribution of assets, reducing ambiguity or confusion about the decedent’s wishes. However, it’s important to note that a will alone doesn’t avoid the probate process.
What Is a Trust?
A trust is a legal arrangement in which a person (the "grantor") transfers ownership of their assets to a trustee, who manages those assets for the benefit of the beneficiaries according to the grantor’s wishes.
In estate planning, trusts are used to confirm that assets are distributed outside of the probate process, which can save time, money, and potential complications.
There are various types of trusts, including revocable living trusts, irrevocable trusts, and special needs trusts.
A revocable living trust is one of the most popular forms of estate planning. It allows the grantor to retain control over their assets during their lifetime, with the ability to amend or revoke the trust at any time. Upon the grantor’s death, the assets in the trust pass directly to the named beneficiaries without the need for probate.
The primary benefit of a trust is its ability to avoid what can sometimes be a lengthy and costly probate process.
Additionally, trusts can provide more privacy than a will, as the distribution of assets in a trust typically doesn’t become part of the public record. Trusts can also be used to manage assets for beneficiaries who may be unable to handle their inheritance due to age, disability, or other reasons.
Differences Between Wills and Trusts
While both wills and trusts are essential tools in estate planning, they differ in several key ways. Understanding these differences can help individuals make the best choice for their estate plan. Next, we’ll explore some of the most significant distinctions.
Probate Process
A major difference between a will and a trust is how the estate is handled after death. In Texas, assets distributed through a will must go through probate, a legal process that validates the will and authorizes the distribution of assets.
Probate can be a time-consuming and expensive process, and the details of the estate become part of the public record.
In contrast, assets held in a trust pass directly to beneficiaries without the need for probate. This can save the estate time and money, and it offers privacy since the details of the trust aren’t made public. For individuals who wish to avoid probate, a trust may be a more effective estate planning tool. HOWEVER, this is only effective if ALL of the person's assets are in the trust.
Privacy
As mentioned, a will is a public document once it’s filed with the court during probate. This means that anyone can access the will and view the distribution of assets. In contrast, a trust isn’t part of the public record, so it provides more privacy.
This can be particularly important for individuals who wish to keep their estate matters confidential.
Control Over Assets
A will allows a person to specify how their assets will be distributed, but it doesn’t take effect until after their death. Additionally, unless it includes a testamentary trust, a will doesn’t provide ongoing management of assets after death.
A trust, on the other hand, can provide more flexible control over assets, both during the grantor’s lifetime and after death. For example, a trust can specify that assets be distributed at certain intervals, or only when the beneficiary reaches a certain age or achieves a particular milestone.
This level of control can be especially helpful for individuals who want to confirm that their beneficiaries use their inheritance responsibly.
Costs
Creating a will is typically less expensive and simpler than establishing a trust. A will requires fewer steps and less paperwork, which can make it an attractive option for individuals with relatively simple estates. It’s also easier to amend or revoke a will as circumstances change.
Creating a trust, on the other hand, is often more expensive and may require more detailed planning. While a trust can offer significant advantages, such as avoiding probate and providing greater control over asset distribution, it also requires more upfront work and legal fees.
Management During Incapacity
Another key difference is that a trust can be used to manage assets if the grantor becomes incapacitated.
A revocable living trust allows a successor trustee to step in and manage the trust if the grantor is unable to do so due to illness or injury. This can prevent the need for a court-appointed guardian or conservator.
A will doesn’t address incapacity issues. If a person becomes incapacitated and has only a will, the court would need to appoint a guardian to manage their financial affairs. For individuals who want to plan for incapacity, a trust may be a better option.
When Should Someone Choose a Will?
For individuals with a relatively simple estate, a will may be the most appropriate option. A will is ideal for those who don’t mind the probate process and are looking for an easy and affordable way to direct the distribution of their assets.
Some key benefits of a will include:
Directing asset distribution: Makes sure that your property is distributed according to your wishes.
Appointing guardians: Allows parents to designate guardians for their minor children.
Outlining funeral arrangements: Provides guidance on your preferred funeral and burial plans.
Simplicity and affordability: Offers a straightforward and cost-effective estate planning option.
Ability to supplement with other documents: Can be combined with powers of attorney or a living will for a more comprehensive plan.
A will can be an excellent starting point for estate planning and can be customized to fit your specific needs.
When Should Someone Choose a Trust?
A trust could be helpful in the following situations:
Your estate will exceed the federal estate tax floor, which means your heirs will pay 45% estate taxes
You own real property in multiple jurisdictions, because wherever you own real estate, your estate will have to be probated
You have a special needs child who will continue to need management after the age of majority
You have a blended family and are concerned that one or more children may contest your will
You are in the early stages of dementia and want to avoid being placed under a conservatorship
Combining Wills and Trusts
In many cases, individuals choose to include both a will and a trust as part of their estate planning strategy. A will can serve as a “pour-over will,” which directs any assets that weren’t transferred into the trust during the grantor’s lifetime to be transferred into the trust upon their death.
This approach allows the grantor to combine the benefits of both tools while making sure that their estate is managed according to their wishes.
The First Steps
For individuals in Texas, it’s important to consult with a skilled estate planning attorney to make the right decision for their estate.
