Wills and trusts are probably the two most commonly created estate planning tools today; and for good reason. A good last will and testament provides a range of options and protections, while a good trust or two provide similar benefits. But, when you use the two tools together, they often compliment and enhance the protections provided by each. Understanding why a will and a trust are so important can go a long way to help convince you that you need an estate plan.
Wills and Trust: The Will
A last will and testament is the estate planning device with which most people are familiar. Everyone knows that they can write a will that includes their inheritance wishes. They might also know that they can make additional choices through a will, such as naming an state executor, but the inheritance powers are the most well-known.
As the basis of a comprehensive estate plan, a will is always necessary. Even though many of the choices you can make through a will can be more effectively done through other devices, your will serves as the foundational piece of your plan.
Wills and Trusts: The Trust
A trust is not just a single estate planning device, but a collection of devices that serve a variety of purposes and goals. There are many different kinds of trusts available, and even a simple estate plan can utilize several of them.
For example, a revocable living trust is a popular estate planning tool that can allow you to make inheritance decisions, but do so without the procedural requirements associated with inheritance choices you make through a will. Wills have to go through the probate process before they can control what happens to your property after you die. This process has to take place before a judge, and can take a lot of time and money before it’s over.
A revocable living trust, on the other hand, doesn’t have to go before a probate court, and allows you to make inheritance choices just as a will does. This is why revocable living trusts are so often desirable to people creating an estate plan.
Other trusts people commonly use in estate planning include trusts that help reduce or eliminate estate taxes, trust that protect your pets, or trusts that preserve inheritances for multiple generations. Because trusts are so flexible, there are usually multiple trusts available that match your needs and desires.
Wills and Trusts: Working Together
So if trusts protect you, and wills protect you, why would you want to create both? Why would you need multiple trusts, or multiple trusts and a will, or any combination thereof?
Let’s take a look at an example. Let’s say you want to leave an inheritance for your children. So, you decide to make a last will and testament that gives each of your three children an equal portion of your estate. But, you die while one of your children is still a minor and the other two are old enough to manage their inheritances. What happens then?
If you only used a will, a court will have to appoint someone to manage the young child’s inheritance until he or she is old enough. But, it you used a will that provided for the creation of testamentary trust, you can choose who manages the inheritance. Further, you can use the trust to manage the inheritances you give to your children in a more structured way, such as distributing a portion on their 21st, 25th, or 30th birthdays.
Not only that, but because your will doesn’t become effective until after you die, you can use trusts to protect your interests while you are alive, and use your will to ensure that your wishes are followed after you are gone.
Wills and Trusts: Still Not Enough
Trusts are great, wills are great, and the two types of estate planning devices work well together. Nevertheless, there are many essential estate planning protections that cannot be acquired through either a will or a trust.
For example, neither a will nor a trust will allow you to protect your medical wishes. If you should become incapacitated and require medical care, your health care provider will have to know who to talk to about your medical wishes, treatment options, etc. Neither you will nor any trusts you create will allow you to control these issues. If you want full protections against incapacity, your plan will have to include additional tools, such as durable powers of attorney or advance directives.
So, while having a will that works together with one or more trusts is a great thing to have, it isn’t enough. A full range of estate planning protections will only come when you craft an estate plan that meets your individual needs and desires. If you have any questions about wills, trusts, estate plans, or what they can do for you, or if you want to get started on a plan of your own, contact us at your earliest opportunity so we can discuss your options.