Having an estate plan is essential, regardless of age or wealth. An effective estate plan often includes a will, a trust, or both. Other legal documents and directives may also be necessary.
Understanding the difference between wills and trusts, and the different types of wills and trusts, is important. The better your understanding of these different types of legal documents, the better prepared you will be to make the right decisions to protect yourself and your family in the event you are incapacitated or die.
While estate planning may seem complex, an experienced Northern Idaho wills and trusts lawyer can advise you regarding which option is best suited for your needs.
What is a will?
Simply stated, a last will and testament is a legal document that outlines how your assets will be distributed after your death. This includes any property you own, such as your home, car, furniture, jewelry, and anything else you want to hand down to someone. It also includes the distribution of your money, including checking, savings, retirement accounts, stocks, and bonds. If you own or are partial owner in a business, your will should lay out exactly what should happen with the business.
Most importantly, if you have children who are dependent on you, your will should name a guardian for them. If your spouse is disabled, you can also name a guardian to look after your spouse when you die.
Your will should also name an executor, also known as a personal representative, to oversee the distribution of your assets.
In addition to a standard will outlining how your assets should be distributed after your death, you may want to create a living will. A living will is a type of advance directive which does the following:
- Details your preferences for medical treatment if you are unable to speak for yourself due to a catastrophic injury or illness
- Includes your wishes regarding such things as breathing, resuscitation, life support, and organ donation
Essentially, a living will express your wishes related to your medical and healthcare needs while incapacitated, relieving your loved ones of this burden.
What is a trust?
A trust is a legal document separate from a will. While the two may work in tandem as part of a comprehensive estate plan, not everyone who has a will has a trust and vice versa. While a will outlines how you would like your property and assets distributed after your death, a trust allows you to name a beneficiary or beneficiaries and then holds the money or property on their behalf until it is time to distribute it. Once assets are placed in a trust, those assets then belong to the trust until they are distributed to any named beneficiaries.
You can form a trust while you are alive and the trust can survive your death, depending on the terms of the document, or you can also create a trust through your will. In the latter circumstance, the trust is formed after your death.
There are many types of trusts. There are two more common types which include:
- Revocable trusts – A revocable trust, or living trust, is a trust you create while you are still alive. In creating a revocable trust, you transfer the title of the property into the trust’s name the creator serves as the initial trustee, or person responsible for the trust, while alive. After death, a successor trustee takes over this responsibility.During life, you can modify or completely revoke a revocable trust – hence the name. This makes revocable trusts excellent asset management tools. Revocable trusts are also helpful in avoiding probate for assets that you transfer into the trust before you die. The trust then owns these assets, meaning the assets are not subject to probate upon death.It is important to note that the assets placed in a revocable trust are not protected from creditors while living.
- Irrevocable trusts – In contrast with revocable trusts, irrevocable trusts cannot be modified or revoked after being created. After you transfer an asset to an irrevocable trust, you cannot remove it from the trust – it can only be distributed to the named beneficiary. There are several different types of irrevocable trusts, such as:
There are some important benefits to utilizing an irrevocable trust, including:
- Minimizing estate taxes
- Protecting and sheltering assets
- Helping a trust beneficiary qualify for government benefits
What’s the difference between a will and a trust?
While they are both legal documents used to protect your assets and beneficiaries, there are some key differences between wills and trusts, such as:
- When it takes effect – A will takes effect upon death. Trusts take effect once they are properlyfonded. While there is no flexibility regarding the timing of when a will goes into effect, with a trust you can control the timeframe. This means you can decide to deliver property before your death, at the time of your death, or at any point after your death, as you see fit.
- The role of the courts – Wills are carried out through the court system. If you die without a will, or intestate, the courts will determine how to distribute assets. In contrast, a trust does not involve the courts. Instead, your property is passed to your beneficiaries outside the court system and is directly handled by the trustee.
Is it advisable to have a will or a trust?
Wills and trusts are both important estate planning tools. Every adult, regardless of age or assets, should have a will. A will controls the disposition of your assets. To that end, it is also a good idea to have a living will.
Whether or not you need a trust – and what type of trust you need – depends on a few factors, including the amount of financial assets and property you have, as well as if you have young children or other dependents whose needs must be considered. You may also consider a trust as a tool to protect your assets from creditors, ensuring you can pass those assets on to your beneficiaries.
Ultimately, the question is not whether it is better to have a will or a trust, but if you should have a trust in addition to a will. If you die without having a valid will or trust in place, the courts will determine how your assets are distributed. This can be a lengthy process, which may delay your dependents and beneficiaries from receiving vital funds and property. An experienced Northern Idaho estate planning attorney can guide you through the estate planning process, advising you as to whether a will, trust, or both is best suited for your specific needs.
Contact an Idaho wills and trusts attorney today
Regardless of the size of your bank account or the amount of property you own, having the appropriate will or trust is crucial to protect yourself, your assets, and your beneficiaries. The Idaho wills and trusts lawyers at Evergreen Elder Law can make recommendations in all aspects of estate planning in Idaho. From our office in Coeur d’Alene, we serve clients throughout Northern Idaho. Complete our contact form today to schedule a free consultation or call us at (208) 770-0259.