Wills are an important estate-planning tool, but it is a mistake to assume you can use them interchangeably with trusts. In other words, if you have drafted a will, there are still significant benefits associated with creating a trust too. Ultimately, both of them allow you to pass your assets to your beneficiaries, but they do so in very different ways.
For example, when you pass away after only having a will, your assets still go through probate. During the probate process, the court will confirm that the deceased had written a legal will (and some people make the mistake of not doing any amount of estate planning). The court will appoint an executor (who could be named in the will), and creditors will be contacted and paid through your remaining assets. This can last several months to a year or more if the will is contested. During this time, your assets and accounts are in limbo. Ultimately, the titles of your assets must change and put in the names of your designated beneficiaries before they can receive them.
Creating a trust bypasses probate entirely. Prior to passing away, your assets will be owned by the trust (and your assets will be tilted accordingly) that a trustee manages. You can name yourself as the trustee because you retain the right to manage the assets while you are still alive. Additionally, you will name a successor trustee to distribute your assets when you pass away. The assets inside the trust will not have to pass through probate.
The Importance of Asset Protection
Though there are multiple kinds of trusts, the ones we are discussing here are irrevocable trusts. When you create an irrevocable trust, you no longer legally own the assets contained in the trust, and you cannot modify it either. Your attorney can explain how protected your assets are based on the laws of the state where the trust was established. Generally, you are forming a wall between your assets and future creditors.
For example, imagine that you and your estate planning attorney create an irrevocable trust, and you put your home in it (which is referred to as funding the trust). If someone files a lawsuit against you in the future, they cannot seize your home to satisfy a judgment against you. However, it is important to note that you cannot fund a trust with your assets to avoid paying creditors. The court could undo the transfer if you did it fraudulently.
When you meet with your attorney, you can also ask how a trust can protect the assets you wish to pass on to your beneficiaries. If you leave your home to your son, what happens if your son gets divorced? Is their spouse entitled to the home you gave your son? The answer to this depends on the type of trust and the laws surrounding it. You can speak to your attorney about ways in which you can safeguard your beneficiaries’ inheritances by placing them in a trust.
Contact An Estate Planning Lawyer
Attorney J. Kevin Tharpe has decades of experience helping clients protect their assets and legacy through efficient estate planning. We can assist you with creating a trust, drafting a will, or modifying an existing estate plan. We aim to build an estate plan that fits your unique needs and wishes. Contact us today to schedule a consultation.
Kevin Tharpe
Latest posts by Kevin Tharpe (see all)
- Key (Future) Changes To Estate Taxes - April 15, 2024
