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Most estate plans contain both a will and a trust or trusts. While both can name beneficiaries for your property, the differences sometimes cause confusion.
Most estate plans contain both a will and a trust or trusts. While a function of both is to name beneficiaries for your property, the differences sometimes cause confusion.
What is a will?
Having a will is a “must do” for every physician. If you die without one, you are said to be “intestate” and the courts and established law in your state determine what happens to both your minor children and your assets. An unpleasant thought.
As noted above, a will basically establishes your intent as to who will take care of minor children (guardians if no parent is living), and who will receive your assets when you die. A simple will names a guardian (and successors) for the children, and includes a simple outright disposition of assets to adult heirs (or in the interim, to guardians of assets for minor children). In any event, when inheriting children reach the age of majority (usually 18), they get the assets outright with no inherent protection.
A will also allows you to name your executor, the person who will be in charge of distributing your estate and paying debts and taxes from it. Most choose a trusted adviser or family member for this role. As if having control over where your assets go and who is in charge of them isn’t enough of a reason to have a will, the probate process is much more costly and time-intensive for those that die without one.
Wills do have some limitations. For example, retirement accounts and life insurance policies that have named beneficiaries will pass on to those named, regardless of what the will dictates. The same goes for some types of jointly titled property.
What is a trust?
Trusts allow control and protection over many assets that wills do not cover. Trusts have nothing to do with the care of minor children, just assets. Unlike a will, a funded trust can also be set up to provide for the care of your needs and your assets even during life, should you become incapacitated temporarily or permanently.
A will can actually set up a simple trust. More commonly, a will instructs the probate court to “pour over” your solely held assets into a free standing trust set up during life.
A major difference between wills and trusts is that to name beneficiaries via a will, you simply describe who should get the asset. To accomplish the same with a trust, you must actually retitle the assets in the name of the trust.
A benefit of having assets already in a trust is that the assets avoid the costly and time consuming probate process that assets distributed via a will must go through. Another benefit is that a trust protects assets from claims to your estate. The same trust may offer excellent asset protection for your heirs.
It is important to note that a trust does not replace a will. Most trusts deal with specific pieces of property while a will should govern the distribution of everything else in your estate.
Trusts are particularly useful for people with larger estates, people who have very specific instructions as to how the estate is distributed, and people who own a lot of real estate. While a simple will can be set up on the Web without enlisting an estate planning attorney, the more complicated nature of most trusts makes it wise to enlist the help of an estate planning attorney.
It is important to review both wills and trusts every few years to ensure that they still reflect your goals and are also in line with tax and other estate law changes.