Estate planning is a crucial endeavour for every adult, allowing them to shape the destiny of their assets after they pass away. It is an act of kindness towards their loved ones, providing clarity on their wishes. Two primary avenues for achieving this are trusts and wills, each serving the purpose of asset distribution upon one’s demise, albeit through distinct legal mechanisms.

Wills vs. Trusts:

Wills: Often known as “last wills and testaments,” wills are legal documents explicitly outlining how one desires their assets, encompassing physical possessions like homes, vehicles, and even pets, as well as financial holdings such as bank accounts and investments, to be distributed upon their passing. Wills also offer the unique capability of appointing a legal guardian for minor children, if applicable.

The history of wills stretches back to ancient Roman times, rooted in the fundamental desire to impart instructions for the inheritance of one’s possessions, a concept that has endured through the centuries. In essence, a well-prepared will serves as a protective legal instrument that ensures the safeguarding of one’s assets, their surviving spouse, and heirs. It serves as an unambiguous roadmap for the realization of posthumous intentions, resisting any attempts to circumvent these wishes.

Trusts: Trusts constitute a legal arrangement in which assets are transferred into the trust’s ownership, with a designated trustee entrusted to oversee them. This arrangement effectively vests ownership of all assets in the trust, with the trustee acting as their custodian. It’s worth noting that many individuals appoint themselves as trustees, allowing them to retain control and utilization of their assets while alive. In such cases, it’s prudent to nominate a successor trustee who will assume this role upon the individual’s demise or incapacity.

Trusts come in various forms, but they broadly categorize into two types: revocable (modifiable or revocable) and irrevocable (typically unchangeable without a court order). The flexibility of revocable trusts makes them more prevalent, allowing alterations, amendments, or terminations at any time. However, because the grantor maintains control of trust assets during their lifetime, these assets are included in their taxable estate. In contrast, irrevocable trusts entail relinquishing ownership rights to assets, with a trustee managing them independently. If appropriately structured, this arrangement can shield trust assets from the grantor’s creditors and tax obligations.

There are some instances where setting up a trust could be advantageous, such as:

• You have a large or complicated estate
• You own a business
• You want to avoid the cost and delay of probate court
• You want the transfer of your assets to your heirs to be private
• Trusts give you greater control over your assets, as they can outline specific rules or    conditions for how they will be distributed.

Will, Trust, or Both:

Determining whether to employ a will, a trust, or both hinges on the unique circumstances surrounding one’s estate. For uncomplicated estates with easily transferable assets and straightforward bequests, a will may suffice as a cost-effective and efficient choice. However, reliance solely on a trust can lead to complications for assets beyond its purview, subject to intestacy laws.

Larger and more intricate estates often benefit from a combination of both instruments. Even if most assets bypass probate, a will can still play a crucial role in managing assets that don’t transfer automatically, such as those in trusts or retirement accounts with designated beneficiaries. Moreover, a will can create a testamentary trust to oversee assets for specific purposes, like supporting minor children until they reach maturity.

In sum, the decision to employ a will, a trust, or both hinges on factors such as the nature and value of assets, the age and capabilities of heirs, tax planning, and the complexity of bequests.  Protecting your assets and caring for your beneficiaries are essential components of intergenerational wealth management, and creating an estate plan that’s tailored for your specific situation can help to ensure your wishes are carried out appropriately. If you’d like to understand more then feel free to reach out to us.