When it comes to estate plans, the two basic kinds are will-based plans and trust-based plans. The differences between these two types of plans can seem minimal on the surface, but in practice, the practical differences between these two plan types make it important for a client to choose the right option.
What is a Will?
A will, commonly referred to as a last will and testament, is a legal document that contains a person’s wishes regarding important business that occurs after they pass away.
Essentially, a will is a letter that lets the judge of a probate court know how the assets of a person (a.k.a. a testator) should be distributed, who they have named to handle the probate of their estate, or what their wishes are regarding the care of their minor children (if any). A will-based estate plan relies on the use of a will as the primary document that an executor must follow when distributing a testator’s assets.
What is a Trust?
A trust is a contract in which a trustor gives a trustee authority to distribute their assets to their beneficiaries when they pass away. A trust-based estate plan uses a trust as the method of estate transfer.
The Difference Between Will-Based and Trust-Based Estate Plan
Both will-based and trust-based estate plans have the same basic components, namely: a will, a living will, a power of attorney, and a healthcare directive. A trust-based plan, however, also contains a revocable living trust.
A revocable living trust is created while a trustor is alive, and they can change the terms in the trust at any time while they are alive. However, unlike a will, a living trust distributes assets outside of probate court.
So, if a person who has a trust-based estate plan passes away, the transfer of their estate does not need to go through the probate process. With a will-based estate plan, however, the transfer of a testator’s estate typically needs to go through the probate process.
Which Type of Estate Plan is the Best For Me?
An attorney can help you pick the estate plan type that makes the most sense for you. A trust-based estate plan—because the distribution of assets doesn’t need to go through probate—saves your beneficiaries and your loved ones time and hassle, and makes the estate transfer process much smoother. It is also more private and less expensive.
However, a trust-based estate plan is best used if a trustor owns real estate—such as a home or other assets that have a deed. If you don’t, you may not need a trust because you don’t have any real estate assets that you would otherwise be deeding to a trust. In cases like this, a will-based plan might make more sense for you.
But, whichever situation you are in, an estate plan is still worth setting up. If you have questions or need guidance, we can help you decide whether a will-based plan or a trust-based plan is best for you. Call us now for a consultation of your case at no obligation to you.