Is it better to have a Will or a Trust?
A Will or a Trust?
Wills and Trusts are both estate planning documents used to pass assets on to beneficiaries at death. However, there are distinct advantages to using a Trust over a Will. Here are three ways in which a Trust is better than a Will to pass your estate to your beneficiaries.
1. A Trust can be used to Avoid Probate – a Will cannot.
A Trust is an excellent probate avoidance tool because assets that are owned in the name of a Trust are immediately accessible to the successor trustee. Whereas a Will guarantees probate and assets are not available until the Court appoints a Personal Representative.
Probate is the process of changing the title on assets when someone passes away. Assets that are owned in a deceased person’s individual name and for which there is no named beneficiary are no longer accessible once the owner of the asset has died.
To gain access to accounts or other assets in the deceased’s name, they must file a petition with the probate court and wait for the court to approve the Will and appoint the Personal Representative. This can be a long and costly process during which bills cannot be paid and assets cannot be managed.
2. A Trust can provide Creditor Protection – a Will cannot.
By leaving assets to your beneficiaries via a Trust rather than outright via your Will, you can ensure that the assets you worked so hard for will be available to your beneficiaries. Many people worry that the inheritance they leave to their children will be lost to their children’s creditors such as a divorcing spouse, unpaid credit card bills, bankruptcy, a business loss, or a lawsuit. Sadly, this is often the case when assets are distributed to beneficiaries via a Will.
A Trust, however, allows the maker to safeguard an inheritance from the reach of the beneficiaries’ creditors by keeping the assets out of the name of the beneficiary. Ownership of the assets remains in the Trust. The beneficiary will have access to the assets in accordance with the directions you leave in your Trust. You may also allow your beneficiary to serve as Trustee, allowing the beneficiary to manage her own inheritance.
Probate is the process of changing the title on assets when someone passes away. Assets that are owned in a deceased person’s name and for which there is no named beneficiary are no longer accessible once the owner of the asset has died. In order to gain access to accounts or other assets in the deceased individual’s name, they must file a petition with the probate court and wait for the court to approve the Will and appoint the Personal Representative. This can be a long and costly process during which bills cannot be paid and assets cannot be managed.
Probate may be a very important consideration for you when choosing a Will or a Trust.
3. A Trust can Administer Assets for Minor Beneficiaries without Court Intervention – a Will cannot.
A Trust allows you to determine when young beneficiaries will receive their money, sometimes age 25 or 30. A Will can’t delay distribution into the future.
Leaving money directly to a minor creates an administrative nightmare because the law provides that a minor does not have the legal capacity to receive assets. So someone on behalf of the minor will need to file a guardianship, which is like a probate except it continues until the beneficiary is 18. The parent of the minor does not have the ability to act as the child’s legal representative until the guardianship court says so.
If you die with a Will that leaves money to minor beneficiaries, the court will need to appoint a Guardian to receive that inheritance for your minor beneficiaries. The Guardian will be required to report and account annually to the court. This means costs and delays in administering funds for minors.
Worse of all, it means that when the minor turns 18, he or she will be entitled to receive all the assets and will be free to do with them as he or she wishes (think fast cars, spring break, and lots of shopping). This is perhaps something that should be carefully considered when choosing a Will or a Trust.
Creating a Trust to receive assets passing to a minor, or even to a young adult beneficiary, is the best way to ensure that the court is not involved in the process, and that the person you want to manage assets for the beneficiary is able to do so, and that the beneficiary can use the assets only for purposes you decide are important and/or at ages that you dictate.
These are the three most important ways in which a Trust is superior to a Will. If you would like to become better informed about choosing a Will or a Trust in your situation, call Murphy & Downs Law Office today.
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