Creating a comprehensive estate plan is one of the easier things to put off, especially if you are young and healthy. In fact, as many as 68% of Americans have either decided not to write a will or simply have not gotten around to it. Still, as the adage goes, there is no time like the present to put the affairs of your estate in order.
If you are ready to do some estate planning, you may not quite know where to start. You may also have some questions about the differences between wills and trusts, two of the more common estate planning tools.
What is a will?
A will, sometimes called a last will and testament, is by far the most common type of estate plan. With this document, you dictate what happens to your assets after your death. You can also use your will to name a guardian for your kids.
The minimal formal requirements and straightforwardness of wills are obvious benefits. Of course, if someone close to you believes the will is unreliable because of undue influence, a lack of capacity or another legal reason, he or she may have grounds to contest it.
What is a trust?
A trust is perhaps the second-most common estate planning tool for Americans. With this estate planning approach, you place assets into a trust and name a trustee to oversee it. The trustee, who acts as a fiduciary, manages the distribution of your assets after your death according to your instructions.
Trusts are often more expensive to set up and maintain than wills. Nevertheless, there may be tax advantages to choosing a trust over a conventional will. Additionally, with a trust, your estate does not have to go through probate. This is probably not the case with a will.
Ultimately, depending on your wishes and other factors, both a will and a trust may have a place in your overall estate plan.