Elderly couple going over estate plan with attorney

Estate Planning 101: Should You Get A Will or A Trust?

Deciding whether you need a will or a trust can be difficult. Both offer estate planning options, but which is right for you? In this post, I will discuss the benefits of each and help you decide which is best for your needs.

The Case for Trusts

A Trust Avoids Probate

Trusts offer certain benefits that wills do not. Trusts can be used to avoid probate, which is the legal process of distributing a person’s assets after their death. This saves a lot of time and money. If an estate needs probate, it will cost at least $5,000 and delay the beneficiary’s ability to handle matters for months. This means paying extra money for utilities, mortgages, property taxes, and other maintenance pending completion of the probate.

On the other hand, a Trustee can step in and immediately pay bills, collect assets, and distribute trust assets as instructed in the Trust document.

Trusts Are Private

Trusts are private as they are not typically a matter of public record. Many of my clients do not want other family members to know how they decided to handle their financial matters. They are pleased that a trust offers privacy so they can give their assets to whomever they please.

A Trust Offers More Control

Trusts can also offer more control over how your assets are distributed. With a will, you can only specify how your assets should be distributed upon your death. With a trust, you can specify when and how your assets should be distributed. For instance, you can instruct your Trustee to use the assets to pay for your kids’ college first and then distribute the remaining funds when they graduate.

A Trust Offers Increased Protection

Trusts can also be used to protect your assets from creditors, lawsuits, or divorce. Assets properly titled in a Minnesota Trust can be shielded from creditors or protected for your child in the event of a divorce.

Trusts can also protect assets in the form of tax benefits. Trusts can be used to minimize estate taxes and gift taxes. A valid Minnesota Trust can be managed in a way that minimizes your, or your beneficiaries, tax liability.

A Trust Offers More than After Death Planning

A Trust is one of the few estate planning tools that is useful during life and after death. As such, a Trust can also be used for incapacity planning. If you become incapacitated, your Trustee can manage your assets on your behalf. You may instruct your Trustee to only use trust assets for your care and benefit if incapacitated. Or the trust may allow for continued gifts to children or charitable institutions. You decide and instruct your Trustee accordingly.

A Trust is a Crucial Tool If You Have Minor Beneficiaries

Many people don’t know that minors are unable to directly inherit assets. Trusts should be used for planning for minors. With a trust, you can specify how and when your minor children should receive their inheritance.

I’ve had several cases in which someone died leaving a life insurance policy for the benefit of a minor. Insurance companies will NOT pay the proceeds to a minor. They often require someone to get a court order (conservatorship) before issuing a check. This process costs at least $5,000 and complicated annual filings on the part of the person helping manage the money for the benefit of the minor. Worse, if the proceeds exceed $10,000 the conservator must also post a bond.

When A Will May be Enough

Wills offer some benefits that trusts do not. The main benefit of a Will is mainly that executing a valid Minnesota Will is generally simpler and less expensive to create. Wills can also be used to name a guardian for minor children. Trusts can do this as well, but it is more common to name a guardian in a will.

So, which is right for you? If you want to avoid probate and have more control over your assets during your lifetime and after your death, a trust may be the best option. If you want a simpler and less expensive estate planning tool, a will may be the better choice.

Trusts can be a great estate planning tool, but they are not right for everyone. Wills can also be a good option, depending on your needs. Be sure to consult with an experienced attorney to decide which is the best option for you and your family.