Estate planning is one of the most commonly overlooked areas of financial planning. This month we will continue our discussion of estate planning techniques. If you have been following our blog postings, you may recall the distinction between Per Capita and Per Stirpes designations.

Those designations are essential but not the only tools you need to make the most of your estate planning. For example, suppose you have an asset that does not allow you to list a beneficiary (i.e. house, car, personal property, etc.)? Or what if you want to impose specific rules or limitations for the beneficiaries? In most cases, the solution is either a will or a trust.


will and trust defined


Will vs. Trust: What’s the Difference?

Today we will cover the pros and cons of using a will and a trust. There are many types of wills/trusts out there, so we will only discuss these two vehicles from a high-level view. Please get in touch with us directly or speak to your estate planning attorney if you would like to explore these options in more detail. If you do not have an existing attorney relationship, we have trusted referrals that would be more than happy to answer any questions you may have.


What is a Will?

A will is a legal document expressing a person’s wishes as to how their property will be distributed after their death and which person is to manage the property until its final distribution.

When someone mentions getting their final wishes in order, they typically are referring to a will. We see that more times than not, if somebody has estate planning documents, they have a choice. This is because a will applies to a broader range of individuals, and it is usually the cheapest option. In the simplest form, a will is used to leave behind your wishes and may include directions on how you would like your assets transferred.


Understanding the Basics of a Will

A will may include instructions to divide up monetary assets, which should be receiving the home and whether it could be sold to other beneficiaries, guardians you would prefer for minor children, and so on. Any wish you may have at your death can be included in your will. Wills are very customizable since sometimes they are specific and lengthy while others are short and straight to the point. A will can be crafted to fit your unique situation.

However, not all of your wishes may be handled correctly because of the limitations of a will. This is because a will is only a set of instructions you give to a probate judge. The judge has the ultimate final say as to what will happen. Probate is by far the biggest downside to a will. Not only is the process expensive and very time-consuming, but a will can be contested by your heirs.

This means that your children may explain to the judge why they believe they should receive all of your assets instead of your spouse. We often joke that probate is when your distant third cousins will come out of hiding and try to stake their claim on your estate. And if they are persuasive enough, the judge may rule in their favor and disregard the wishes laid out in your will.


What is a Trust?

A trust is a much more complex vehicle than a will and usually is much more expensive. Because of this, we see that those who have more assets are typically the ones to pursue a trust. While a will is just a set of instructions, a trust is a legal entity that will own the assets.

A group of instructions usually accompanies a trust as well to inform the Trustee, or controller of the assets after your death, as to how you would like the assets to be distributed. These instructions allow you to dictate who receives an inheritance, when they will receive it, and how much they will receive. You cannot control the timing of the inheritance with a will, and this is especially important when a child or grandchild would benefit from not receiving all the assets at once.


Understanding the Basics of a Trust

The most significant advantage to a trust is that it will bypass probate. This means that your Trustee is required by law to follow the instructions within the trust. There is no probate cost, no argument between who receives what, and no lengthy delays in the asset distribution. As long as you can trust your designated Trustee, you will not need to worry about your assets after death. They will be distributed exactly as you laid out in the trust instructions.

A variety of trusts can be used to limit taxation, limit control, and even designate certain benefits for charity. As a separate entity, trusts may need to pay income tax on any growth of the assets within it. The assets may also be used to pay final expenses or any fees incurred by the Trustee upon your passing. For those who can afford it, a trust is usually the better option over a will.



Speak With a Trusted Advisor 

If you have any questions about how inflation may affect your investment portfolio, taxes, our 401(k)-recommendation service, or anything else, please call our office at (586) 226-2100.

Please feel free to forward this commentary to a friend, family member, or co-worker. If you have had any changes to your income, job, family, health insurance, risk tolerance, or overall financial situation, please call us so we can discuss it.

We hope you learned something today. If you have any feedback or suggestions, we would love to hear them.

Best Regards,

Zachary A. Bachner, CFP®

with contributions from Robert Wink, Kenneth Wink, and James Wink

After graduating from Central Michigan University in 2017 with specialized degrees in Finance and Personal Financial Planning, Zachary Bachner set himself apart by earning the CFP® designation. Zachary now writes articles aimed at helping everyday people understand complex financial topics. He focuses on explaining financial planning concepts and strategies in clear, simple terms.

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