What Are 3 Advantages of a Trust Over a Will?

Planning for the future can be a daunting task, but one thing is certain: it is essential. Thinking about what will happen to your hard-earned assets after you are gone can feel overwhelming. This is where estate planning tools like trusts and wills come into play. Choosing between a trust and a will is a common decision many people face, and it can be tough to know which is right for your situation. But, when exploring the three advantages of a trust over a will, certain benefits often make trusts a more favorable choice, especially when considering larger or more complex estates. A trust can help avoid the probate process, offer greater control over asset distribution, and may even offer certain tax advantages. It’s worth noting that trusts typically involve higher initial costs to establish. Let’s dive into these advantages of a trust over a will and examine why a trust might be the best option to protect your legacy.

What is a Will?

Before we get into the benefits of a trust, it is crucial to understand what a will is and its role in estate planning. A last will and testament, often referred to as just a will, is a legal document that outlines your wishes regarding how your assets and property will be distributed upon your passing.

By making a will, you can ensure that your belongings will be given to the people or organizations you care about. Within your will, you name an executor, an individual who will be in charge of carrying out the distribution of your assets as outlined in the document.

Think of this person as a director tasked with overseeing the fulfillment of your wishes after you’re gone. Having a will also allows you to assign a guardian for minor children or specify care arrangements for your beloved pets. Without a will, these critical decisions will be left up to the courts, a situation many prefer to avoid.

Advantages of a Last Will

While often viewed as simpler and less expensive to set up than a trust, there are advantages of a will to consider. A will can be beneficial when keeping things basic and straightforward. When you want to set up a simple plan for your belongings quickly, choosing to use a will might be right for you. Let’s delve into what makes a will a preferable option for some.

This infographic outlines key benefits of establishing a trust over a will, including avoiding probate, gaining greater control over asset distribution, and maximizing tax advantages.

Simplicity

Making a will is often straightforward. Wills generally don’t involve the intricate legalities or high setup costs often associated with establishing a trust. This can make wills appealing for people who want a more accessible and direct method of estate planning.

For example, using an online will maker is an increasingly popular option because they offer templates or simple steps you can use to put your affairs in order from the comfort of your own home. These services can offer affordable price points, sometimes for as little as $0-$199, appealing to those who may have limited funds.

Although using online resources to plan for such an important subject seems risky, several websites dedicated to assisting in this area have excellent reputations and offer valuable support. You can also hire an attorney or even use a service that is DIY, but has a lawyer overseeing the final document.

Amendments and Revisions

It’s worth mentioning that circumstances often change in life, leading to necessary adjustments in an estate plan. A significant benefit of having a will is that updating your plan to address those changes can be as easy as writing an amendment or even drafting a new document to better suit your needs.

However, making updates should always be handled carefully, following legal guidelines and standards to guarantee any changes will be valid.

Disadvantages of a Will

While wills can serve an essential purpose and benefit many individuals, several downsides may make it the wrong choice, depending on your situation. We’ll go through those in this section.

The Probate Process

One thing you’ve probably heard in any conversation about trusts versus wills is the “dreaded” probate process. Probate is the legal procedure overseen by the court where a will is officially validated, and the decedent’s assets are distributed to heirs and beneficiaries.

Many see this process as burdensome because it can take months or even years to be completed. Delays like these often occur when an estate must be meticulously scrutinized for issues such as unpaid debts, outstanding taxes, or disputes between potential heirs.

While it varies from state to state, probate processes typically are considered a public matter, lacking the confidentiality afforded to those using a trust to settle their affairs. After a person passes away, your executor will submit an official application and a copy of the will to the probate court to start the process. They begin their investigation, and the judge determines if the will follows all legal requirements for proper execution and is otherwise legitimate. Even with the simplest of estates, having a basic understanding of what is involved during probate can help you determine which method, a trust or will, is better.

Asset Limitations

One detail that’s frequently overlooked is that a will covers only those assets held solely by the decedent at the time of their passing. If any accounts have beneficiaries named, such as a retirement plan or life insurance policy, the stipulations of the will won’t impact the designated beneficiaries receiving their distribution.

It is not uncommon for misunderstandings or disputes to arise regarding these specifics between loved ones after someone is gone. Discussing plans and desires openly with family beforehand can help to lessen heartache during this emotional time. Additionally, consulting a trusted estate planning attorney will not only help guide you through your own individual state’s probate regulations but can also protect your family members during an already difficult time.

What is a Trust?

A trust is an alternative to a will that you might want to explore, offering some crucial advantages for individuals looking for more control and security regarding their legacy. A trust is essentially a fiduciary relationship that permits one party to hold and manage assets or property on behalf of beneficiaries. They are usually managed by a trustee designated by the person who creates the trust.

In other words, you can transfer ownership of your house, car, financial accounts, or any valuable possessions to a trust, naming yourself or another individual or organization to take charge of distributing them to your designated beneficiaries upon your death. Texas law dictates that there are two main types of trusts: “living trusts” and “testamentary trusts”.

Testamentary trusts are very similar to a will since they become effective only after the grantor dies, meaning you will need to name it as a part of your will, while living trusts operate a little differently. Living trusts become active immediately once they are signed, and this can help your loved ones avoid having to deal with probate entirely. By putting a living trust in place and funding it with your assets, your chosen successor trustee is able to manage and distribute them according to your exact stipulations.

What are 3 Advantages of a Trust over a Will?

Now that you understand both a will and a trust and the important roles they serve in estate planning, it’s time to explore the three advantages of a trust over a will. While this method is not necessarily perfect for everyone or for all situations, several distinct benefits may make using a trust advantageous in many circumstances.

Avoidance of Probate

Perhaps the most notable benefit is how a trust can allow you to completely sidestep probate court. Probate, while essential in validating the will, ensuring proper execution and settling matters, can be long, costly, and a very public process. Not everyone desires to have this take place with their assets after they die.

Using a trust empowers you to keep all these details confidential, preventing anyone not listed in the trust document from accessing sensitive information. Assets held within the trust pass to your beneficiaries swiftly and privately.

Increased Control Over Asset Distribution

The benefits don’t stop there; trusts also offer greater flexibility for you to control how your assets are handled even after you are no longer alive. For example, a parent concerned about their children inheriting assets while they’re still young can set up stipulations using a trust, staggering distribution of their inheritance until they reach a predetermined age.

They may only receive a certain percentage each year, and this could also prevent funds from being carelessly spent all at once. The level of detail possible for dictating disbursement far surpasses the limitations inherent in using only a will.

Tax Advantages

Another distinct advantage lies in the potential tax savings offered through the use of a trust. When creating an irrevocable living trust, for instance, you legally transfer ownership of all trust assets to the trust, removing them from your taxable estate.

In cases where applicable, using this type of trust can potentially lower or eliminate the federal estate tax, defined as a “tax on your right to transfer property at your death,”[1] that your heirs might be responsible for upon inheriting assets from your estate.

It’s essential to consider the details of your state’s rules when weighing the tax advantages. Let’s look at the estate tax in the state of Washington as an example. The exemption limit in this state is significantly lower than the federal level, currently set at $2.19 million, and their estate tax ranges from 10% to 20%.[4] How do those figures translate into how much tax your heirs will be liable for in a real-world situation?

In simple terms, your estate must first surpass the exemption amount before becoming taxable. For example, if your estate is worth $3.19 million at the time of your passing, only $1 million would be subject to taxation at a rate of 10%. In Washington state, anyone inheriting assets exceeding the exemption limit of $2.19 million must also file an estate tax return with the Washington State Department of Revenue within nine months after the date of the death.

Understanding Revocable and Irrevocable Trusts

The kind of control you prefer over the terms of the trust is a primary factor in choosing between a revocable trust and an irrevocable one. They both play important roles in different situations, and both types offer various benefits. Here are the advantages and disadvantages of a revocable trust vs. an irrevocable trust.

Revocable Trust

The word “revocable” offers a clue to the level of power a grantor has using this method. It allows you to make changes, adjust, or alter details as needed. Think of a revocable trust as a dynamic document. Want to update your designated beneficiaries or make adjustments to any asset distributions outlined in your revocable trust? No problem; go right ahead. You even have the right to completely revoke or dissolve the trust if that’s the direction you decide is best for you.

While you enjoy these privileges, it’s important to recognize that because these assets can revert to your name, they’re still considered part of your estate for tax purposes. This can mean they’re vulnerable to being assessed federal estate tax or other related levies.

Irrevocable Trust

In contrast to a revocable trust, as the name implies, irrevocable trusts aren’t meant for changing. Once established, making modifications or dissolving the trust completely generally isn’t allowed. You would relinquish control of the assets. These specifics should be carefully considered, especially if your circumstances or wishes might change later on.

With this level of certainty in place, a considerable advantage lies in its protection from creditors. Should financial issues occur, assets held in an irrevocable trust would be shielded from any creditors attempting to gain repayment. Irrevocable trusts are frequently selected for their tax advantages, offering opportunities to minimize or avoid estate taxes for heirs. Due to the complete ownership transfer to the trust, they’re removed from your taxable estate. If that aligns with your goals, it may be worth seeking the counsel of an estate planning services attorney.

Having a clear explanation of applicable federal regulations regarding the $12.92 million exemption can be extremely beneficial, as this number changes each year. Many online services specialize in this complex area of estate planning, offering to help with all legal document preparation. A couple of popular choices include Quicken WillMaker or Trust & Will, offering help at affordable price points of approximately $139 to $440.

When Does a Will Work Best?

While we’ve already looked into the specific pros and cons associated with choosing a will as opposed to a trust, it’s helpful to examine what factors would make someone gravitate toward this simpler route. There are definite reasons that making a will might be the best choice. For many, having complete and clear control over their belongings, right up until their final moments, is vital. Others prefer not to take on the cost and often lengthy preparation involved in creating a trust.

Another situation where you’ll choose a will involves scenarios where your assets are straightforward, without a high total monetary value. Having a limited number of heirs or beneficiaries is another consideration. However, even when planning a basic estate, ensuring that it clearly specifies all your desires is important.

Vague wording or language open to misinterpretation could mean legal battles for your family after you are gone. If they end up arguing and squabbling over unclear instructions in the will, a court may become involved to settle the matters, potentially consuming a substantial portion of any inheritance during the process. If this unfortunate event were to transpire, wouldn’t it diminish the joy and security you sought to give them? Let’s consider a hypothetical situation: An elderly gentleman named Jack had minimal possessions. Aside from personal effects, he only had a small retirement account and savings account. His dearest friend Mary took care of his day-to-day affairs in his final years.

Jack wished for Mary to receive his remaining possessions once he died. Due to the minimal monetary value, Jack opted to create a will instead of forming a trust. However, in his state, Texas, there are legal intricacies involved when you do not have any family or blood relatives that might make having a simple will invalid. According to the state’s intestate succession laws, when someone dies without surviving family members, the state decides how the property will be divided. Because of this specific detail regarding intestate succession laws in Texas, the court became involved in distributing his property. The probate court required Jack’s will to be filed with them for review and determination as part of that legal process.

When Does a Trust Work Best?

When determining which method might best suit your needs, one thing to consider when looking at the three advantages of a trust over a will is the complexity of your finances, particularly with a sizable estate. Because a trust bypasses probate court entirely, this may be a deciding factor. Keeping the intimate details of your final wishes and finances from becoming public record can often make choosing to create a trust seem worthwhile.

Those that own multiple homes or valuable property such as real estate often consider the use of a trust. If you’re concerned about potential legal or financial difficulties arising from creditors attempting to lay claim to assets you’re trying to leave behind for your loved ones, choosing to create a trust, especially an irrevocable living trust, is usually preferable to creating a simple will.

Trusts may also offer various tax benefits that a will can’t, which we covered in a previous section, so when navigating how to protect the maximum amount for your beneficiaries to inherit, using a trust is the smarter route. For instance, those wishing to donate funds to charitable organizations they are passionate about, such as leaving money to research efforts for finding cures for life-threatening diseases or funding vital humanitarian endeavors that alleviate global poverty, would benefit from the various asset protection methods offered through creating a trust. Having their inheritance protected and safe from external risks can also offer them significant peace of mind, knowing their wishes are secure, exactly how they were planned.

FAQs About What are 3 Advantages of a Trust Over a Will?

FAQ 1: What Are the Downsides of a Trust?

While using a trust can seem like the ideal solution for estate planning, it is crucial to be aware of the disadvantages as well. While trusts often have greater complexity and entail more elaborate legal procedures compared to a will, there are certain downsides that may make them not the best option for everyone, even when considering the three advantages of a trust over a will. Firstly, setting up a trust can be pricier than simply drafting a basic will. Legal fees and other expenses associated with professional counsel and services should be carefully factored into the decision.

Additionally, the process of funding a trust involves moving assets such as transferring bank account ownership or altering the beneficiary of a life insurance policy. Each of these actions has associated paperwork, potentially leading to frustration and adding time and hassle to completing the trust setup. While you can generally use an online service for a simple trust or create a will for very low costs ranging between $0 to $199, more complex or high-value situations will need the expert assistance of a lawyer who will help ensure all legal requirements in your particular state are addressed properly. If you choose an online route for this highly sensitive subject matter, it is vital to read plenty of customer reviews to guarantee the website has a strong track record for success.

FAQ 2: Why Use a Trust Instead of a Will?

You may decide that the three advantages of a trust over a will align perfectly with your particular situation and concerns regarding managing your estate after your passing. Avoidance of probate, a lengthy process that exposes your personal finances to public record, often seems advantageous for most families. However, one thing people generally consider essential when choosing between a will or a trust is maintaining the highest level of privacy surrounding the process.

Along with this comes the capability to specify precisely how you desire to distribute your assets, far exceeding the limited stipulations of a standard will. Think of it this way: you could choose to delay payments until a beneficiary graduates from college or make annual disbursements instead of granting full and immediate access, even as an adult. Using a trust gives you the unique freedom to structure how these actions play out.

It can even stipulate under what circumstances a loved one may be denied their portion altogether, for instance, due to repeated choices with potential devastating outcomes such as drug addiction. A properly planned trust allows you to safeguard against certain foreseeable possibilities occurring with assets intended as loving provisions. Additionally, various trusts offer different tax advantages that simply aren’t available using a will. Taking all these benefits into consideration when weighing your options should clarify which direction best suits your individual goals and family’s situation.

FAQ 3: Should I Put My Bank Accounts in a Trust?

Having your bank accounts protected within the umbrella of a trust, similar to other valuable possessions, will keep them out of probate and allow them to be managed as you’ve meticulously directed. While this might seem unnecessary with a minimal amount in your bank account, large balances should definitely be transferred.

Because trusts have their own legal framework with strict procedures that vary from state to state, it’s wise to consult with legal professionals. A Texas trust attorney will have the knowledge to advise you on proper procedures for trust accounts.

FAQ 4: What is the Advantage of Putting Everything in a Trust?

When evaluating the three advantages of a trust over a will, keeping in mind the goal is to shield as much of your legacy as possible, and moving as much of your property into it makes sense. This comprehensive action ensures those important assets remain confidential after your passing and grants you a broader level of control compared with the basic directions of a will.

Trusts are frequently the preferable option when facing issues involving substantial monetary value. While trusts, especially irrevocable trusts, are more intricate and generally involve greater preparation and costs associated with legal guidance, these drawbacks can be easily offset by the long-term advantages of this method.

Conclusion

Estate planning is essential. When facing the difficult task of preparing for your legacy and what you want to leave behind for your loved ones, one choice involves deciding how you will manage your possessions. Making a will, a basic, less costly option that you can easily update and modify throughout your life, serves its purpose. Choosing this method, however, could mean that your loved ones will have to face lengthy delays and potential fees associated with going through probate court.

Why might you explore creating a trust? Because a trust affords privacy, keeping personal matters out of the public record, allows a higher level of control over disbursements, and offers various potential tax benefits, making it advantageous over using a will alone in many instances. When the overall complexity or monetary value is sizable, creating a trust and using it to distribute assets should be at the forefront of your considerations. Having a legal expert, such as an experienced estate attorney, on hand throughout the process will ensure that everything adheres to all current legislation, offering the best possible level of protection for you and your beloved beneficiaries.