If you've been considering planning your estate, you may be wondering whether a will or trust is right for your specific situation. Wills and trusts are two types of estate planning tools that can be used individually or together, as part of a comprehensive estate plan. What is the difference between a will and a trust, though? While the objective of each instrument is to ensure that your property is distributed in accordance with your wishes after you pass, there are several critical differences.
A will is a written instrument that provides instruction regarding how you wish your assets and property to be divided. Despite the amount of property you own, it's crucial to have a valid will in place. If you pass without one, you will have died "intestate," and your assets will be divided in accordance with Oregon law — which may not necessarily reflect your wishes.
Some of the things a valid will can do include:
A will is only effective after death and must go through the formal probate process in order to transfer your assets to your beneficiaries. However, specific legal requirements must be satisfied for a will to be valid — a will must be in writing and signed by two witnesses. Additionally, the individual executing the will must also be over the age of 18 and of "sound mind."
Another common estate planning tool is a trust. A trust is a legal arrangement that allows a third party to hold property that will later be acquired by your beneficiaries. Importantly, there are many different types of trusts that can be used, depending on your specific objectives. Trusts can be set up to provide for family members, friends, charities, and even pets.
Creating a trust can be a complicated process, and should be done with the guidance of an attorney. To create a trust, a written document must be drafted naming the beneficiaries and the property you wish to bequeath. Then, assets or property must be transferred into the trust. Critically, a trust is not valid until it is fully funded.
Living trusts are one of the most common types of trusts used in estate planning. Unlike a will, a living trust, also known as an inter vivos trust, is effective during the creator's lifetime. In other words, you can distribute your property to loved ones prior to your passing if you choose to do so with this type of trust. Since a living trust is revocable, it can also be amended at any time after its creation, allowing for flexibility as your family circumstances and wishes change.
In contrast, an irrevocable trust cannot be modified once it is created. With an irrevocable trust, the creator relinquishes their rights to the assets once they are placed in the trust. Consequently, these types of trusts can also offer protection from creditors and can help to avoid estate tax consequences.
Although wills and trusts both have distinct benefits, one is not better than the other — each can carry out different objectives. While everyone should create a will regardless of the amount of assets they have, certain trusts may be more beneficial for those with larger estates. Notably, a living trust can also appoint a successor trustee to handle your affairs in the event that you become incapacitated. For this reason, it may be in your best interests to have both a will and living trust.
There are certain goals wills can accomplish which trusts cannot, and vice versa. One of the major differences between a will and a trust is that a living trust avoids the public probate process. Depending on whether any family members contest the will, the probate process can be lengthy and costly. By using certain kinds of trusts, financial and family affairs can be kept private and out of court.
It's vital to evaluate both your financial and family situation to determine whether you need a will, a trust, or both. Factors to consider can include the value of your estate, whether you have minor children, the amount of debt you have, your health, and your preference for keeping your estate matters private. An experienced estate planning attorney can discuss the options that are best for you and your family.
Planning your estate can be a complex and emotional process. It's best to have the guidance of a skilled estate planning attorney who can discuss your family circumstances and advise you regarding your objectives. Based in Salem, Litowich Law works with clients throughout Oregon to help them ensure their future wishes are carried out. We welcome you to contact us for a consultation.