When it comes to estate planning, one thing is certain – everyone has things they can’t take with them when they go. Contrary to popular belief, you don’t need to have significant wealth or assets to justify having an estate plan. But while everyone should have their end-of-life plans in place to protect their surviving family and their legacy, most people have no idea where to start.
One of the most common questions people have regarding estate planning is what documents they need to set up to achieve their goals. A will and a trust are two essential estate planning tools that can achieve different purposes but often work hand in hand.
Here’s everything you need to know about wills and trusts and which you should consider having in your estate plan:
What is a will?
A will is a legally enforceable document that just about every adult can benefit from having. A will serves to instruct what will happen to your property, wealth and belongings after you pass away. If you’re a parent to minor-aged children, a will also allows you to appoint a legal guardian of your children if something should happen to you. If you should die without a will, the court will make these life-altering decisions in a legal process known as probate.
Ultimately, a will is a useful document to have in your estate plan if:
- You have minor children
- You want to make the probate process faster and cheaper for your loved ones
- You want a say in where your assets and wealth will go
- You want to minimize family conflict after you’re gone
What is a trust?
Slightly more complicated than a will, a trust is a legal entity that allows you to put conditions on how and when your assets are distributed after you’re gone. There are many different types of trusts, but ultimately, a trust allows your loved ones to bypass the probate process entirely and can minimize estate and gift taxes. However, trusts typically only deal with specific assets or property, not all of your assets. For this reason, most people opt to have both a trust and a will because a will can cover any assets your trust doesn’t cover.
A trust is an effective estate planning document if:
- You want to skip the probate process entirely
- You want to reduce estate taxes for your beneficiaries
- You want to provide specific instructions for how and when your assets are distributed
The bottom line
Estate planning can feel like a daunting task, but it’s better to have one in place than leave your assets in the hands of the court. Having a strong will, trust or both can ensure your assets go to the right people.