Making estate plans for the end of life can be a daunting idea. Most of us don’t like to think about the time when we will no longer be present on the planet, and we tend to live as though such is not going to actually happen. This can produce a sort of cognitive dissonance, where – in contrast to how we approach it on a daily basis – somewhere in the back of our minds we do understand that our passing is inevitable.
The beauty of estate plans is that we can retain the idea that death will not come for us any time soon, while still honoring that nagging voice of reality. Making plans for what happens to our assets – and even our bodies – after we die can be a “set it and forget it” undertaking. We can take a moment to create our estate plans, and then go back to our active job of living.
For those who have reached a point of deciding to take such a glimpse into the future, the first question often involves how to go about making the estate plans. There is often confusion as to whether a will, or a trust, will provide the best means of accomplishing our goals. In order to clear up some of the fog surrounding the matter, the following is an overview of the differences between the two estate planning modalities.
Differences in a Nutshell
A primary difference between a will and a trust is that of timing. A will is designed to provide directives following death, while a trust is designed to provide directives while we are still living. Then, there is a difference in how the assets are distributed. The contents of a will are distributed fully at the time of execution, while a trust can include specifications for timed disbursements. A final highlight to be mentioned involves the responsibilities of those who remain. A will includes an executor, whose duties begin – and end – shortly after our passing. A trust, on the other hand, includes a named trustee, who can begin to facilitate our wishes immediately after the document is created.
What’s in a Will?
Forming a will can be as simple as sitting down at your computer – or, in some states, grabbing a pen and paper – and writing out your wishes. Most states do not even require that the document be filed with a county recorder before our death, though it will need to be filed, afterward. You will also be well off to present your document to at least two, uninterested, parties for signing. These individuals will be ones who do not stand to gain from the contents of your will, and can witness you putting your own signature on the document. For added protection, these signatures can be created in front of a notary.
In order to be considered valid, the will needs to contain language which is specific to the execution. These wordings specify aspects such as the fact that it is a will; the fact that you are creating the document while of sound mind, and under no duress; and the fact that you are passing on your belongings to specific individuals.
What’s in a Trust?
The trust can be considered to be a document which is more dynamic than the will. As mentioned, it can be designed to be put into play while we are still in operation, resulting in what is called a living trust. With a living trust, we are even able to name ourselves as the trustee, and need only to name a subsequent trustee as the one to take over after our passing. This model allows us to maintain complete control of our assets, while still having our final plans in place.
Forming a trust is quite a bit more involved than creating a will. In order for the trust to provide its protections, assets have to manually be transferred into it. In this way, they become the property of the trust, rather than the direct property of the individual. Thankfully, this extra work that is required in the beginning pays off, later, in the form of easy modification. If you make your trust a revocable one, rather than having to rewrite the trust in the event of changes, one only need to add an amendment to the document. The amendment will specify which parts of the previous arrangement remains, and which part is to be altered. The directives within an amendment supersede any previous directives.
A trust can also be formed as a way to donate ongoing money to a charity, or to provide ongoing financial support for a dependent loved one. Financial accounts which are left in the name of the trust will continue to earn dividends and interest. The named trustee will be responsible for distributing the assets from the account to the appropriate parties, and in a timely manner.
Wills + Trusts = Friends
While both estate plans are often discussed in contrast with each other, a trust and a will can actually work together to provide the ultimate in protection. In the case that you have neglected to include anything within the transfer to the trust, the will can act as a catchall. A simple included phrase in the will – indicating that any assets which haven’t been transferred into the trust shall be bequeathed to whomever – should do the trick. Some of the assets which are outlined according to the will may still have to go through probate – particularly if there are debts involved – but you will be able to rest assured that you have covered all of your bases.
An advance directive can also be added to both estate plans. With an advance directive, you are able to specify how you want things to go in the event that you become very ill or incapacitated. This structure is also referred to as end-of-life planning, and can include details such as which hospitals you are comfortable with; who will be your primary caretakers; and the extent that you want interventions implemented to prevent your natural passing.