A lot of Minnesotans think that the estate planning process is straightforward and requires nothing more than a will, if anything at all. While a minimal estate plan may be appropriate under some circumstances, the fact of the matter is that you probably need multiple legal vehicles if you want to maximize the protection provided to your assets and your loved ones.
This causes many people to ask about the difference between a will and a trust. It's a distinction that's important to know as you navigate your estate plan, which is why we want to devote some attention in this post to the differences between the two.
What is a will?
Simply put, a will is a written document that specifies how your assets are to be distributed upon your death. There are a few other instructions that can be given in a will, such as who should be appointed guardian of your children and who should serve as the executor of your estate. You can even specify what you want your burial arrangements to look like.
In order to be legally valid, your will has to comply with state law. This means that it must be signed and witnessed. If errors are made in the creation of a will, it's at risk of being found invalid, in which case your assets would be distributed in accordance with the state's intestate succession laws if you don't have any other estate planning documents in place.
With that said, wills can be relatively simple, depending on your circumstances, and they can be made rather quickly. This is why many people think of wills when they think of estate planning.
What is a trust?
A trust, on the other hand, is a legal arrangement whereby you transfer assets to a trust where they are managed by a trustee. This trustee is then tasked with ensuring that the assets are handled in accordance with the terms of the trust, which usually involves distribution of those assets to your named beneficiaries. The trustee has a fiduciary duty to handle the estate appropriately, which means that the interests of your estate and your beneficiaries must be put first.
There are a variety of trusts out there, each type geared toward effectuating a specific purpose. For example, an irrevocable trust immediately transfers ownership of assets to the trust, meaning that you can't reclaim ownership. However, doing so removes the assets from creditors' reach. You can also use a trust to motivate a loved one to achieve a specific life goal, conditioning the release of trust assets on the attainment of that goal.
If you have a plan in mind for how you want your assets distributed, there's probably a trust that can help you.
What do you need?
The answer to this question really depends on your situation and what you hope to achieve through estate planning. Most people can benefit from both a will and one or more trusts; they simply need to be informed of the advantages of each. Remember, too, that the estate planning process is customizable, which is why it's critical that you know your options. Only then can you develop the estate plan that suits all of your needs.
Do you need additional guidance?
The estate planning process may seem simple, but the truth is that it's riddled with details that must be adequately addressed if you want to fully protect your wealth and the financial stability of your loved ones. That's why if you're trying to figure out the best path forward in your estate planning endeavors, you might want to consider reaching out to a legal professional for additional guidance.