Your estate plan always needs a will. Sometimes you need a trust too. Here are some key differences.
When it comes to making or updating your Oregon estate plan, the difference between a will and a trust becomes important. After all, odds are you’ve at least heard of both wills and trusts (such as revocable living trusts). However, each legal document or instrument serves a different purpose and has its own advantages.
The short of it? Your estate plan will always need a will. Sometimes you will want a trust as well. Here’s why.
Why the differences matter for your Oregon estate
For Oregon estate plans, your will sets out the overall instructions for your estate. It tells your estate’s personal representative and the probate court how you want them to settle the estate after your death.
Depending on the type of trust, a trust can take effect during your lifetime or after your death. Either way, a trust becomes the title holder for specified assets and property, and a trustee manages the trust for the benefit of a designated beneficiary or party of beneficiaries. Typically, a trust can be more expensive to set up, but its advantages can quickly outweigh those costs.
Wills also can only cover property held in your name, and cannot govern property held jointly or with a third party. Wills also do not control property with a beneficiary designation. Trusts, however, can only manage property placed under the rules and ownership of the trust.
Four key differences come into play when evaluating wills and trusts for your estate:
- Wills must go through probate. Trusts skip probate.
- Wills become public. A living trust remains private.
- A will can specify guardianship of minor children. A trust cannot.
- Trusts allow for the most advantageous taxable estate planning and asset protection.
Wills must go through probate. Trusts can skip probate.
Probate is the legal process through which a court reviews the terms of a will. This process is time-consuming though, and can be costly to the estate and beneficiaries. Typically probate requires six to eighteen months, but sometimes probate can take years to settle. The longer probate takes, the longer beneficiaries have to wait to receive any property that the will gifted to them.
Trusts, however, are not subject to probate. A will’s instructions cannot be carried out in full until probate concludes or the court orders an interim distribution. On the other hand, the trustee can distribute property and assets held in a trust with more flexibility and under the direction of his or her attorney.
Wills become public. Trusts remain private.
If you prefer to keep more of your estate matters private, a trust can help with that. A crucial difference between a will and a trust is that trusts can remain private and out of the public eye.
As part of the probate process, a will becomes part of the public record. However, trusts do not pass through probate. Trusts operate under the rules that govern the trust, so the assets, conditions, and beneficiaries can all remain private.
Another advantage of trusts remaining private? People or other parties can contest wills in probate. While it’s not impossible for a trust to face a court challenge, it is unlikely. Since a will becomes public record, it’s more prone to challenges. Only the people relevant to the trust know the contents and rules. That privacy can streamline property and assets distribution, and ultimately may cost survivors less.
A will can specify guardianship of minor children. A trust cannot.
Another key difference between a will and a trust?
While a trust can do many things, it cannot specify who takes over as guardians for minor children. Only a will can make that determination. If your will does not specify a guardian, then your preference for guardian will not be known when the court appoints a guardian to your children.
Depending on your estate, however, a trust can still come into play in regard to minor children. While the will needs to appoint a guardian, a separate trust can maintain control over the holding or use of property or assets, to prevent abuse or misuse by the guardian or others.
Trusts allow for the most advantageous taxable estate planning and asset protection.
A trust can allow for both spouses to fully utilize their Oregon estate tax exemption amount (currently $1,000,000 per person). This is normally through what is called an AB Trust. A trust also provides for protection against creditors for beneficiaries with a spendthrift provision and the accidental disinheritance of stepchildren when their biological parent passes away.
A will does not allow for the preservation of the tax exemption of a deceased spouse as easily. This can result in an estate tax expense on the death of the second spouse. Since a will does not obtain control over assets until after death, there is no asset protection—and stepchildren often become disinherited.
Sometimes your Oregon estate needs both a will and a trust
At a minimum, your Oregon estate plan needs a will. Your will can carry out your overall estate instructions and wishes. If you have minor children, your will is the instrument that can appoint a guardian for them.
Sometimes, though, you may want to add a trust to your estate plan as well. The trust can manage real estate or financial property, and can greatly streamline tax impacts (such as estate tax) and property distribution for your beneficiaries. Since a trust can avoid probate, beneficiaries also may be able to more quickly receive the property you’ve left them.
Plus, just like a will, you can also update or revoke trusts as needed during your lifetime.
Wills. Trusts. Both. What’s best for your Oregon estate plan?
Will and trusts can have a big impact on your estate and how it helps your loved ones and others you want to benefit with your estate. Whether you need to establish or update your will, trust, or both, doing so can give you peace of mind and help those you care about. Are you ready to work with your Oregon estate planning attorney to get what you need for your Oregon estate plan?