If you’re securing your family’s future or protecting assets from the unexpected, you need to know what legal instruments are available to you. While wills and trusts are cornerstones of this process, they are not the same, nor do they serve the same functions, have the same benefits, or the same limitations. Long-term asset protection requires knowing which tool – or combination of tools – is best for your situation.
Wills: A Framework for After Death
A will is a simple legal document that specifies how your things should be divided once you die. It names a person or people to give effect to these wishes, who might be included in provisions for guardians for minor children or dependents. But with that simplicity comes limitations. The key features of a will include:
Activation After Death
Only after your death is the will good. That means it has no influence over your assets until then.
Probate Requirement
Probate is the court process by which most wills are validated and executed. It is time consuming and expensive.
Guardianship Provisions
A will lets you choose who will take care of your minor children if you have any.
Limited Privacy
Probate, however, is a public process and the details of your will and estate will be available to anyone who cares to look.
A will is a must for almost everyone, but it’s not a complete solution. It provides no protection for you in your lifetime, and your estate is exposed to probate, legal challenges and creditor claims.
Trusts: Precision and Control
But a trust is entirely different – it’s a separate legal ‘thing’ that holds and directs assets in accordance with your wishes. Various protections can be written into trusts that either take effect during your lifetime (living trusts) or at your death (testamentary trusts). The key features of a trust include:
Active During Your Lifetime
While you are alive, trusts can work as a means to manage assets should you become incapacitated.
Probate Avoidance
Assets in a trust avoid probate completely, as well as being private and transferred more quickly and efficiently to the beneficiaries.
Customizable Distribution
With trusts you have the power to dictate greater detail in how and when assets are distributed, providing you with more control over what becomes of yours in death.
Tax and Asset Protection
You can include assets in certain types of trusts (known as irrevocable trusts) that are sheltered from creditors and won’t be subject to estate taxes.
Although trusts demand a lot of time and money to set up, they are the ultimate answer for someone with an extensive or complicated estate.
Comparing Wills and Trusts: Key Differences
In order to choose the right level of estate planning for you, it helps to understand the basics: wills versus trusts. Here’s a rundown of all that makes them unique:
Activation
Wills only go into effect after we are gone, while trusts – particularly living trusts – can work for us while we are alive and beyond.
Probate
Probate is a public process that can be expensive and time-consuming, and most wills require it. A trust bypasses probate entirely and makes the transfer of assets simple.
Privacy
It exposes the details of your estate because during probate the wills become part of the public record. Your affairs are kept private by trusts.
Tax Benefits
Tax advantages are not provided by Wills. There are certain trusts (i.e., irrevocable trusts) that can cut back on estate taxes and keep assets from creditors.
Control Over Distribution
But the distribution of assets is left to the whims of the court under wills, which grant little control over how or when. Trusts are detailed and you can customize these instructions to your needs.
Asset Protection
Your will does not protect you from creditors or legal challenges. Dependent on the type of trust, they can protect assets from these risks.
Cost
In general, wills are less expensive upfront to create and trusts have greater upfront costs to establish but provide more long-term benefit.
During Incapacity Effectiveness
If you become incapacitated, wills offer you no protection. The purpose of trusts is to make sure your assets are handled as you instruct if you can’t.
Wills and trusts are not antagonistic to each other. Many people, especially those with a lot of wealth or complicated estates, find they need both for a truly comprehensive plan.
When Do You Need a Will?
A will is indispensable for most individuals, particularly if:
You Have Minor Children or Dependents Who Need to Be Taken Care Of
You can name a guardian for your children or dependents with a will so you know that they will be cared for by someone you trust.
Your Estate Is Below Your State’s Probate Threshold
This makes the probate process easier and quicker and cheaper and guarantees your assets will be distributed as you wished.
If you want to lay out specific end-of-life care instructions or funeral arrangements
Uncertainty during an already emotional time is relieved by a will because it provides clarity on these matters.
A will is important, but on its own it won’t be enough to protect your wealth or make for true comprehensive estate planning. Probate bypasses your wills and your estate is not immune to public scrutiny and legal challenges. They also cannot help manage your assets while you are living; this is imperative if you become incapacitated.
If you want to protect privacy or to protect yourself from creditors or disputes in regard to your assets, you should combine a will and a trust.
When Do You Need a Trust?
Trusts are great for people with bigger or more complicated estates or who want specific perks like:
Probate Is Avoided and Privacy Is Maintained
By using trusts, your assets avoid delays, costs, and public exposure because they pass directly to your beneficiaries.
Protecting Your Assets from Creditors or a Legal Claim
There are several different types of trusts, but irrevocable trusts in particular safeguard your wealth from your creditors, lawsuits, and other financial attacks.
Distributions to Minors, Disabled Beneficiaries and Individuals at Risk of Financial Mismanagement
A trust gives you the opportunity to specify how and when assets should be distributed so they are used appropriately.
Minimizing Estate Taxes in Jurisdictions Where Such Taxes Apply
There are certain trusts designed to reduce or eliminate estate taxes so that more of your wealth will be available for future generations.
Continuity in Case of Incapacity
A trust is a way to make sure your assets are managed according to your instructions if you ever become unable to manage them.
People with large accounts of wealth, business participation in different jurisdictions, or with property in different locations need trusts the most. To the 0.1%, a trust is not simply a strategic advantage, it’s a necessity for them to keep control, privacy and long-term security over their assets.
Common Misconceptions
There are so many myths around estate planning that can lead to very costly mistakes. To make informed decisions about protecting your wealth, you need to know what are the limitations of wills and trusts and how those two instruments work together. Firstly, let’s clear up some of the biggest myths.
“Wills Are Enough for Everybody”
Wills are fairly basic but they are not all-encompassing. These don’t protect you while you’re living; they don’t protect your estate from probate; and they don’t give tax advantages either.
“Trusts Are Only for the Ultra-Wealthy”
Trusts are indispensable to UHNWIs, but they are also useful to people who want privacy, control or certain protections for their estate. It’s a great way to save time, money and stress in the long run as the upfront cost to set up a trust.
“A Will and a Trust Do the Same Thing”
While they both serve a similar purpose – ensuring your assets go to the people you want them to – they go about it in totally different ways. Usually the most durable estate plan comes from combining both.
Can a Will and Trust Work Together?
They should, yes, and often. Any assets you haven’t transferred to your trust can be your will’s backup, so nothing falls through the cracks and leaves you scrambling to find out where you went wrong. Sometimes referred to as a “pour-over will,” this type of will directs any remaining assets into your trust upon your death.
This dual approach is for the truly wealthy, who want to have comprehensive coverage and not leave legal or financial vulnerabilities to exploit.
Dominion: Estate Planning for the 0.1%
If you find yourself facing the many challenges of wealth governance, take your time and don’t accept outdated advice or cookie cutter solutions. Using Dominion’s international network of financial and legal experts, you are guaranteed a bespoke approach to the management of your assets with complete security, privacy and the assurance that your assets are managed to the letter.
Since we’re experts in wills, trusts, and other advanced estate planning tools, we don’t just meet industry standards – we set them. So let us help you make sure your legacy is protected bulletproof by design.
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