Key Differences Between a Will and a Trust
A will or trust serves as the foundation of all Phoenix estate plans. They both help you transfer your assets to your beneficiaries, but there are significant differences between the two estate planning tools. The role each vehicle plays in your estate plan will depend on your unique circumstances. It is possible and not uncommon for estate plans to include both wills and trusts.
Before starting your estate plan, it is critical to understand the differences between these two documents. Below are six of the key differences between a will and a trust in Phoenix, Arizona.
A will passes through the probate process, whereas the property in a trust passes outside of probate. Probate is a court-supervised proceeding that oversees the administration of your will. There are disadvantages and advantages of probate. In Phoenix, it can be lengthy and expensive for larger estates. The property must first pass to the executor before being distributed to the beneficiaries under supervision from the court. However, probate for small estates is streamlined and is not costly. Property in trust transfers automatically at your death with no delay.
Probate is not private. Your will is filed and becomes part of the public record. Additionally, the probate process provides an opportunity for interested parties to challenge the will. A trust that passes outside of probate does not become part of the public record. The result is that wills are successfully challenged much more frequently than trusts.
2. Effective Date
A will does not take effect until after you die. Trusts take effect after they are signed and properly funded. The primary benefit of having an effective date before death is that a trust can provide protection and direct your assets during incapacity. Your trustee can manage your property on your behalf while you are unable to make decisions for yourself.
3. Guardianship for Minor Children
In a will, you can choose a guardian for your minor children. You cannot designate a guardian for your children in a trust. If you do not appoint a guardian in your will, the court will decide who will act as the guardian of your minor children.
4. Tax Benefits
If your estate is significant, a trust can provide tax benefits that a will does not. Assets in an irrevocable trust (and their appreciation over time) are shielded from estate taxes. In general, irrevocable trusts cannot be altered after their creation.
Tax benefits are less relevant if your entire estate is going to a spouse. You can pass wealth to a surviving spouse through the unlimited marital deduction without incurring gift or estate tax liabilities.
5. Protection From Creditors
A will provides no protection from creditors. In fact, as a part of the probate process, creditors are notified and paid before the executor distributes property to the beneficiaries. On the other hand, an irrevocable trust provides asset protection. Once you create an irrevocable trust, you no longer own or have any control over the assets in the trust. Because of the change of ownership and control, your creditors cannot reach the trust property.
6. What Property is Distributed
Any property named in the will (besides non-probate property) will be distributed after your death. Examples of non-probate property include retirement accounts, life insurance, jointly owned property, and trust assets.
In a trust, only the property that has been funded into the trust will be distributed. Funding a trust is the process of transferring ownership of your assets from you to the trust. You must physically change the title of your property from your individual name to the name of your trust.
Because any non-funded property can fall through the cracks, many individuals who have trust in their estate plan also include a pour-will in their estate plan. With a pour-over will, the property owned outside of the trust, as well as anything subject to the will, is transferred to the trust at the time of your death. It acts as a backup plan to ensure that all your property gets funded into your trust.
Your Phoenix Estate Planning Attorney
If you are interested in creating or updating your estate plan, you should consult with an experienced estate planning attorney who understands Arizona’s unique laws and regulations. Nicole Pavlik has successfully helped many Phoenix residents navigate the estate planning process and is ready to offer you the advice you need. Call Nicole Pavlik Law Firm today at 602-635-6176 to schedule a consultation.