Trust or Will - How to Choose?
People ask me all the time about the benefits of using a Trust versus a Will for their primary estate planning document and I tell them, for me, it comes down to three things: Efficient administration, asset control, and asset protection.
1) Efficient Administration
When a person dies with a Will (or even without a Will), her estate is subject to a legal process called probate. While most probated estates are not complicated, they do require court involvement which can delay access to assets.
With a properly “funded” revocable or living trust, the assets will already belong to the trust while a person is alive. While she is living, she is the trustee and can manage/spend the assets as she sees fit. Once she is gone, the trustee will continue to belong to the trust, but a person she names in her trust agreement will now serve as her successor trustee.
This person can immediately manage/distribute the assets according to the directions in the agreement. So, the idea is: the trust owns the assets while you are alive and will continue to own the assets after you are gone. They only things that change are: who controls the trust and how they manage the assets.
2) Asset Control
In a properly drafted trust agreement, you can dictate when your beneficiaries, particularly minor children, would receive their inheritance. In most situations, any control elements in a trust are moot because the terms, such as age, are satisfied simply by the passage of time.
However, if something happens to a person when they have young children, there could be a situation where they are entitled to inherit a significant sum at a relatively young age.
If you have an eight year old child, think about how much your life insurance, retirement accounts and house might appreciate in value in the next ten years. Would you want your child to have access to the whole amount when she turns 18? Maybe not, especially if you want her to go to college or otherwise make her own way through life.
With a trust, you can delay the distribution of income and principal until the child reaches an age of your choosing: 25, 30, 35 or a combination thereof. You can also provide a trustee the ability to withhold such distributions if the child has a debt, gambling, drug or other problem that might put the assets at risk.
3) Asset Protection
With a revocable or living trust, the trustor/trustee/beneficiary (aka you) receive no asset protection because you can change it at any time. However, once you are gone, your trust becomes an irrevocable trust and affords the beneficiaries significant asset protection.
For example, as long as the assets are still held in trust for a beneficiary, creditors cannot seize such assets to satisfy a legal judgment and governments cannot use assets held in trust for a beneficiary to make financial aid decisions.