Wills and trusts are the two most prevalent methods for transferring wealth after death. Most individuals are acquainted with a will. Fewer people are familiar with trusts and why they are likely the superior estate planning tool in most circumstances, even though they are quick, simple, and crucial to creating. Here are three significant distinctions you should be aware of before you begin estate planning:
1) Wills don't help you to avoid probate
Probate is the court-supervised process of transferring an individual's assets after death. Some people characterize it as a "lawsuit against yourself." Most clients avoid it due to its inefficiency, expense, and public nature (learn more about the Arizona process here). The majority of people believe that by making a will, they may prevent this process; however, this is not the case. Instead, a will must be submitted to the court, where a judge or clerk will validate its legitimacy and continue to oversee the procedure.
On the other hand, assets held under a trust will avoid probate and can be swiftly transferred to your beneficiaries.
2) Wills rarely govern the majority of your assets.
Another significant drawback of wills is that they do not govern the distribution of most of a deceased person's possessions. Because many assets (e.g., retirement accounts, life insurance policies, etc.) pass automatically to designated beneficiaries (e.g., retirement accounts, life insurance policies, etc.) or co-owners (e.g., a jointly titled home or bank account, etc). Regardless of the terms of your will
While these transfers are probate-free and therefore generally efficient, they may differ from what you've stated in your will and do not permit you to structure inheritance as intelligently as you can in a trust, taking into account each beneficiary's age, financial condition, and individual circumstances.
3) Wills are ineffective in the event of incapacity.
Wills do not take effect until after death. Hence they are of no use in the event of incapacity. And since most people do not pass away unexpectedly, this is becoming an increasingly vital aspect of estate planning. Consequently, without a legitimate power of attorney, your loved ones would be required to launch an expensive court case to recover control of your assets if you become incapacitated.
Contrast this with a properly financed living trust (more on below), where your replacement trustee can immediately manage your financial assets upon incapacity.
If you would like more information about whether a will or a trust is preferable for you, don't hesitate to contact Minawill today for a short.