Learn the differences between a will, trust, and estate

A will vs. estate planning

Everyone should have a will or legal document that communicates your wishes after you pass. On the other hand, an estate plan goes much further. Not only does it deal with the distribution of assets and legacy wishes, but it may help you and your heirs pay substantially less in taxes, fees, and court costs.

What’s the purpose of an estate plan? 

• The primary purpose of an estate plan is to help you examine your financial needs and assets in order to make sure that your heirs are provided for in the best possible way. It includes lifetime planning as well as disposition of property at death.¹
• Estate planning allows you to get your affairs in order and ensure that everything you own with value attached to it goes where you want it to without complication. 
• Your estate includes all your financial assets, like equity in your home; checking, savings, and retirement accounts; your life insurance policy; etc.
   

What’s included in an estate plan?

Here’s a list of items that are typically included in an estate plan:

1. Will/trust
2. Durable power of attorney
3. Beneficiary designations
4. Letter of intent
5. Healthcare power of attorney
6. Guardianship designations

In addition to these six documents and designations, a well-laid estate plan also should consider the purchase of insurance products such as long-term care insurance, a lifetime annuity to generate some level of income until death, and life insurance to pass money to beneficiaries without the need for probate.

Difference between a living trust and a will

Almost everyone should have a will, but not everyone needs a living or irrevocable trust. If you have property and assets to place in a trust and have minor children, having both estate-planning vehicles might make sense.²

• A living trust is different from a will in that there is no probate period, so your heirs will receive the assets more quickly after your death. You can also add restrictions to how and when your assets are distributed. 
• For example, your child will receive a specific amount of money on your behalf each year once he or she turns a certain age. The heir will pay any debts you have and then distribute everything else according to your instructions. Importantly, trusts provide more privacy than a will, which becomes a matter of public record.
• A trust is more expensive to set up and is typically used by wealthier individuals to avoid estate taxes, or by people who want more control over how their heirs access and use the assets they’re being left. 

You should avoid leaving the future division of your assets up to the state. While you may not think you have enough wealth to make an estate, a will, or a trust worthwhile, a moderately funded retirement account, some equity in a house, or a decent life insurance policy may make you worth more than you think. So, take the steps now to make sure everything is set properly for your loved ones and your legacy.