We’re often asked: what’s the difference between a will and a trust?
Both are useful estate planning tools that have different purposes, and both can work together to create a complete estate plan.
A Will Alone May Not Be Enough
When it comes to creating an estate plan, most people typically think of a will. While it’s possible to leave your assets in your will, it’s not always the ideal option, especially for families that value privacy, immediate access to funds, and bypassing court intervention. That’s because, upon your death, all assets passed through a will must first go through a court process known as probate. The cost of probate, the time of probate, and the complexity of a court making decisions about your family and your business assets often come as a surprise to families.
During probate, the court oversees your will’s administration to ensure your assets (including your business) are distributed according to your wishes. A lesser known fact is that probate can take months, or even years, to complete, and it can be quite expensive, which can disrupt your family dynamics and your business’s operations and cash flow. Another overlooked but important detail: probate is a public process, leaving your familial and business affairs exposed to everyone.
Further, a will only goes into effect upon your death, so it would not protect your family and business should you become incapacitated by illness or injury. If you only have a will in place (or no estate plan at all), your family would have to petition the court for guardianship to manage your personal and financial affairs in the event of your incapacity, including your business.
Like probate, the court process associated with guardianship can be long and costly. In the end, whether it’s a family member or professional guardianship agency, there’s no guarantee the individual the court ultimately names as guardian of your assets would be the best person to run your company.
Maximum Protection for Your Business and Family
Given the potential drawbacks associated with a will, many families and business owners are choosing to utilize a revocable living trust for their estate planning, in lieu of a simple will. A living trust is not required to go through probate, and all assets placed within the trust are immediately transferred to the person, or persons, of your choice in the event of your death or incapacity. A revocable living trust allows you to retain the privacy, control, and flexibility that a court process can otherwise take from you.
Upon your death or incapacity, having your assets and business held in a trust would allow for a smooth transition, without the time and expense associated with probate or guardianship. Using a trust, you can choose the individual(s) you think is best suited to manage your assets and your business in your absence, whether that absence is permanent (your death) or temporary (your incapacity). What’s more, within the trust, you can also create a succession plan, which would provide the new owner with detailed—and legally binding—instructions for how you want the business run when you’re gone.
Finally, trusts aren’t open to the public, so your family and company’s internal affairs would remain private, and any transfers of ownership would take place in your lawyer’s office, not a courtroom.
Although the majority of families and business owners will get suitable protection using a revocable living trust, for the most airtight form of asset protection, you may want to consider creating a specialized irrevocable trust. Such irrevocable trusts are quite complex and would certainly require your lawyer’s involvement.
A Comprehensive Plan
While placing your personal and business assets in a trust is an effective way to protect them upon your death or incapacity, it’s merely one part of a comprehensive asset protection plan. To get the maximum level of protection and make the best decisions at a personal and professional level, meet with us to determine the greatest protection for both you and your family. Schedule a call to learn more!
AB Law, PLLC is a full-service business law and estate planning firm that serves clients throughout Texas. All consultations are free and no question is too silly, ridiculous, or complex. https://calendly.com/ablawpllc www.ab-firm.com