It's that time of year when most people start to think about creating an estate plan. If you've never created an estate plan before, it can be confusing, especially when it comes to understanding the differences between a will and a trust. Many people, when they start thinking about getting their legal affairs in order, believe that they need to create a will. However, they may also hear about trusts and how they can make the settlement of an estate easier. So, what's the difference between a will and a trust, and do you need one or the other (or both)?
What are Wills and Trusts?
First, let's define what a will and a trust are. A will, also known as a last will or last will and testament, is a legal document that outlines who will receive your assets when you die and who will be in charge of making sure that your wishes, as expressed in your will, are carried out. This person is typically referred to as your executor or personal representative. If you die with assets in your name, such as a home, business, or investments, your executor and heirs will go through a court process called probate, where a judge will ensure that your will is valid, appoint your executor to handle estate matters, and oversee the distribution of your assets to your heirs according to the terms of your will.
Many people view the probate process as expensive, time-consuming, and generally unpleasant, as it can be difficult to navigate. This is where trusts come in. There are different types of trusts, but when people compare wills to trusts, they are usually referring to a revocable living trust. A revocable living trust is a legal arrangement where assets are held on behalf of another person or entity. When you create a revocable living trust and title your assets in the name of the trust during your lifetime, you can still do what you want with those assets. However, when you die, the successor trustee that you designated in the trust document can distribute the assets to your designated trust beneficiaries without having to go through the probate process.
This is one advantage of a trust - it can avoid probate, which can be costly and time-consuming. However, not all assets need to go through probate and can be distributed directly to beneficiaries upon your death, such as retirement accounts that have designated beneficiaries. It's important to consult with a lawyer to determine the best estate planning strategy for your individual situation.
A will is a legal document that outlines how you want your assets to be distributed after you die and who will be in charge of carrying out your wishes. A trust is a legal arrangement where assets are held on behalf of another person or entity, and a revocable living trust is a type of trust that can be changed or revoked while the person who created it is still alive. Trusts can be a useful tool for avoiding the probate process, but it's important to consider all of your options and consult with a lawyer to determine the best approach for your individual situation.
The Probate Process
Since we briefly referenced it, it's important that you understand a bit about the probate process as well. Probate is the legal process of settling a deceased person's estate and distributing their assets according to the will or, if there is no will, according to the laws of the state. The probate process can be complex and time-consuming, but it is an important step in ensuring that a person's wishes are carried out and their assets are distributed correctly.
The first step in the probate process is to determine if the deceased person had a valid will. If they did, the will must be filed with the probate court in the county where the deceased person lived. If there is no will, the court will follow the state's laws to determine how the assets should be distributed.
Next, the court will appoint an executor or personal representative to manage the estate. This person is responsible for gathering the assets of the deceased person, paying any debts and taxes, and distributing the remaining assets according to the will or state law.
If there are disputes over the will or the distribution of assets, the probate process can become more complicated. The court will have to resolve these disputes before the assets can be distributed.
The probate process can take several months or even years to complete, depending on the complexity of the estate and any disputes that may arise. It is important to work with a lawyer who can guide you through the process and help you understand your rights and obligations as an executor or beneficiary of the estate.
Overall, the probate process is an important step in ensuring that a deceased person's assets are distributed according to their wishes and that any debts and taxes are paid. It can be a complex process, but working with a lawyer can help make it as smooth as possible.
Do You Need an Estate Plan?
If you don't already have an estate plan, or if you have one that needs to be updated, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney to get your estate plan prepared.
