Choosing Between a Will and a Trust
Every adult should think about what they want to happen to their estate when they pass away. One of the kindest things you can do for your loved ones is to leave them clear instructions for your legacy. You have two options for outlining your end-of-life wishes: trusts and wills, but choosing between the two isn’t really an easy task. How do they differ from one another, and which one is the best choice for you?
Wills and trusts are similar in many ways. They can both ensure that your estate goes where you want them to go. It’s important to understand that wills and trusts serve different purposes and are distinct legal documents. Both wills and trusts are useful estate planning tools and can be used separately or together to create a comprehensive estate plan.
To help you understand the differences between wills and trusts, the estate planning law firm of Jackson & MacNichol will compare and contrast them to determine the best way to achieve your estate planning objectives. Give us a call now to further evaluate your future needs!
What is a Will?
A will, or last will and testament, is a legal document that specifies how your assets will be managed after your death. The creator of a will, known as the testator, must be an adult of sound mind. The testator appoints an executor or personal representative to handle estate affairs after their death. Guardianship of minor children or pets, distribution of property and assets to beneficiaries, and implementation of funeral arrangements are all examples of what a will contains.
Maine state laws require that a written will be signed or executed by the testator and two witnesses before it becomes legally binding and effective.
Types of Wills
Wills come in a variety of forms, and you might be curious about how these forms are distinct from one another. Our Maine estate planning attorney can outline the types of wills and their differences to provide you with legal guidance on which best serves your goals.
- Simple Will – The classic and fundamental kind of will. Your will specify in the will exactly what you want to happen to all of your assets, beneficiaries, and executor in the event of your passing – who will inherit your home, look after your kids, manage your business and etc. Your will can be changed or revoked at any time. And you have the option to completely create a new one.
- Testamentary Trust Will – A testamentary trust is one that is included in a will and testament. It directs the distribution of all or part of an estate, as well as the proceeds of a life insurance policy held on the person who establishes the trust. Each will may contain more than one testamentary trust.
- Living Will – A living will have nothing to do with your last will and testament or any of the other wills. A living will, on the other hand, specifies your medical care preferences in the event that you are unable to speak for yourself.
- Pour-over Will – A legal vehicle that is frequently used in conjunction with a living trust as a backup or catch-all. It transfers everything in one’s estate to the living trust if assets were not previously transferred to the trust. For example, if a home was removed from the trust during a refinance and never retitled back into the trust, a pour-over will handle the transfer.
- Oral or Nuncupative Will – Instead of being written, a will is spoken to witnesses. Its legality and requirements differ by state. For example, suppose someone is terminally ill and unable to write down their wishes.
- Joint or Mirror Will. – A last will and testament that combines the wishes of more than one person. Spouses who leave everything to the surviving spouse and then to their children are a common example.
What is a Trust?
A trust is a legal arrangement in which you transfer your assets to the trust and appoint a trustee to manage them. This means the trust owns all of your assets, and your trustee is in charge of them. Many people name themselves as trustees of their own trusts, which allows them to use and control their property while they are still alive.
If you decide to go this route, you should appoint a successor trustee. This person will manage your trust after you die or become incapacitated.
Types of Trusts
- Revocable Living Trust – The most widely used type of trust is a revocable living trust. The grantor, who also provides the trust’s funding, usually serves as the directing trustee while still alive. The grantor has the right to revoke the trust, modify its provisions, and transfer assets in and out of the trust’s ownership as they see fit. Revocable living trusts are intended to transform into irrevocable trusts upon the grantor’s passing.
- Irrevocable Living Trust – These trusts are legally binding as of the date of designation and permit very few amendments. The trust grantor transfers property and assets to the irrevocable living trust under the care and control of a trustee. The grantor cannot reverse the trust by changing their mind.
- Testamentary Trust – A testamentary trust is a clause in a will that names a trustee to oversee the assets of the deceased. When the beneficiaries are young children or someone receiving public assistance, this trust is frequently used. A living trust is not a testamentary trust. It only continues after the testator has passed away. As part of the probate procedure, the executor of the decedent’s estate would administer the trust following its terms.
Trusts versus Wills
Wills and trusts are both legal estate planning documents that allow you to decide what happens to your home, property, assets, and even child custody after you die. Before choosing between trusts and wills you must first understand how they function. A good estate plan should include a trust or a will or both to fully protect your estate. If you have confused or have multiple questions while choosing between a will and a trust, you may seek legal advice from our estate planning attorney in Maine.
A will does not become operational until after your death, whereas a living trust is already operational as soon as it is established and money is transferred into it.
Because of this, in the event that you become mentally incapable of managing your own affairs, a trust can step in to protect and direct your assets, whereas a will is unable to do so.
Wills must go through the probate procedure, but assets held in a trust do not.
The legal procedure for allocating your estate after death is called probate. A judge supervises the procedure to guarantee that your debts are paid off and that your last wishes are carried out.
Some people choose to establish a trust rather than go through the costly and drawn-out process of probate court. Trust assets can be distributed to heirs much more quickly because they don’t have to go through the probate court process.
While wills proceedings are public, trust proceedings are not. Probate proceedings are considered a public record, meaning anyone may request to view them. Trusts, on the other hand, do not leave a public record, which may appeal to individuals who are interested in maintaining the confidentiality of their heirs.
A living trust might be a good option if you want to keep your financial affairs private.
Complexity and Cost
Trusts are typically more expensive to prepare upfront than wills because they can be complex and require more paperwork to establish. However, the cost of establishing a living trust may be offset by avoiding probate in the future.
A living trust must be funded in order to function as intended, which calls for all of the assets it holds including real estate, bank accounts, investments, and retirement funds to be properly titled in the trust’s name. A will does not require any transfer of property or funds to function.
You may need to be aware of the estate tax with both wills and living trusts if your net worth is substantial. The federal government implements tax exemption for estate taxes. Any assets above that exemption will be subject to state estate tax in addition to the federal estate tax.
The estate tax exemption, on the other hand, can change and adjust over time. The removal of assets from your estate in an effort to lessen your future tax burden is where an irrevocable trust may make sense for those worried that they may at some point be subject to estate tax.
Precedence and Contestability
Despite the fact that both a will and a trust are legal documents used to manage an estate, their creation is governed by various laws. Wills are governed by testamentary law, while trusts are subject to contract law. A living trust typically prevails over a will because contract law is held to a higher standard than testamentary law.
Living trusts typically take precedence over wills due to their ongoing nature. They become effective once they are signed and funded, and can be updated throughout the grantor’s life, while wills only take effect upon the grantor’s death.
Because it is easier to argue that a will is out-of-date, was written when the testator was not of sound mind or was under the influence of another person, wills are therefore more likely to be successfully challenged.
You are able to name guardians for your children and disabled loved ones in a will. In a living trust, this action is not permitted.
Wills only apply to assets that are in the testator’s name at the time of death. You cannot give someone something that you do not own (except in certain instances). On the other hand, the only assets that can be protected by a trust are those that have been specifically transferred into the trust and given the name of the trust.
Disability and Other Special Circumstances
Wills are not affected by mental incapacity or disability because they do not take effect until after the testator has passed away. Revocable living trusts can include provisions in the event that you become disabled or unable to care for yourself.
What Living Trusts and Wills Cannot Do?
While both wills and trusts are considered effective ways of estate administration, there are limits to what they can do. Here are a few of the things that both trusts and wills can’t do.
- Reduce estate taxes. Wills and living trusts cannot help you reduce estate tax, but most estates do not owe estate tax.
- Leave money to pets. You cannot leave money to your pets because they cannot own property. You can either set up a pet trust or use your will to appoint a dependable caretaker for your pets. However, if you make an attempt to leave your pet’s belongings, they will become part of your residual estate.
- Leave final wishes. Although it is legal to include funeral preferences and other last wishes in your will but never in a living trust, it is preferable to do so in a different document.
- Leave passwords for online accounts. Your executor will value having access to your online accounts, computers, and other devices after your passing. Don’t, however, include this information in your will or living trust. Instead, make a separate document and store it safely with the rest of your estate planning papers.
If I Make a Living Trust in Maine, Do I Still Need a Will?
Yes, you’ll still need a will. It might seem counterintuitive, but doesn’t the purpose of a living trust means that you won’t need a will? Yes, it is. And it’s possible that your will won’t even be read. However, you should still compose one, and you should do so for either one of the following two reasons:
- Guardianship for your minor children and disabled family member. You are unable to appoint a guardian for your minor children and disabled loved ones through the use of a trust. If you have children who are still too young to make their own decisions, you need to have a will that names a guardian for them.
- Accounting for properties that you have not transferred to your trust. People frequently create trusts but fail to formally transfer property to the trust after doing so. Or, after creating their trust, people acquire or inherit property and forget or are unaware that they should assume ownership as the trustee of their trust. In either case, the assets won’t be distributed in accordance with the trust’s rules. To specify how property that is not in the trust should be distributed, you should have a will as a backup.
What If I Don’t Have a Trust or a Will?
If you do not leave a will or establish a living trust, your assets will be dispersed in accordance with Maine intestate laws. Maine’s intestacy laws describe what happens to property when a person passes away without leaving a will. This is referred to as dying intestate. If an intestate deceased person had a surviving spouse, the spouse has a priority to receive certain properties under Maine’s intestacy laws.
However, the surviving spouse may not have sole priority in receiving all probate property. If the deceased had children, parents, siblings, and other relatives, the spouse may have to share the probate property. And it’s possible that’s not what the decedent wanted at all.
Between Trust and Wills, Which Suits You Best?
Knowing the differences between the various wills and trusts types can help you make a more informed choice regarding which estate planning tool, or combination of tools, is best for you. The majority of people need wills, but not everyone also needs trusts.
The big question now is whether you should get a trust, a will, or both. It all comes down to personal preference and your situation. To begin, consider your overall life circumstances and your needs.
- Wills – If you’re like most people and have a few kids and a house, you may consider making just a will. And you probably won’t need a lawyer unless your situation is really complicated but we strongly suggest you reach out to an estate planning attorney for a more comprehensive estate plan.
- Trusts – If you’re older, your kids are grown and have a sizeable estate, you may create a trust. This is a way to avoid probate that wills don’t let you do.
- Wills and Trusts – If you have a large estate and people who depend on you, you should get both a will and a living trust. And if you do get both, you don’t have to worry about them colliding. They are two different legal documents that usually don’t go against each other. If there happen to be legal issues, the trust will win over the will.
Still Confused Between Trusts vs Wills? Contact our Maine Estate Planning Attorney Now!
If you’re unsure, speaking with a Maine estate planning lawyer can give you a second opinion on the best way to accomplish your estate planning goals while highlighting any aspects you might not have thought of.
While thinking about how to distribute your assets after your death may not be enjoyable, writing down your intentions allows your family and friends to act on your behalf without having to second-guess them during a difficult time. It is among the best presents you can give both to your loved ones and to yourself because it will give you peace of mind knowing that they are in good hands.
Choosing between trusts and wills might be challenging but it is a decision that you should do before it’s too late. Future planning is essential on so many levels. Reach out to our estate planning law firm in Maine to help you consider your options!