An estate plan is a strategic way to secure the legacy of your estate and ensure that your assets are distributed according to your wishes after you pass. In North Carolina, like in other states, wills and trusts are used as common estate planning tools. There are benefits and drawbacks to each, which makes it important for you to understand the key differences. A financial advisor can help you create a robust estate plan for your needs in North Carolina.
Purpose of a Will
A will, also known as a testament, is a legal document that clearly communicates a person’s wishes regarding the distribution of their assets upon their death. Additionally, it names an executor to administer and ultimately distribute the estate.
The primary goals of a will encompass the distribution of assets, making decisions about guardianship and appointing an executor. The absence of a will can result in an ‘intestacy‘ situation, where state law dictates the distribution of the deceased person’s assets, which might not always align with their intent.
For instance, in many jurisdictions, the spouse becomes the sole inheritor of all assets in the absence of a will. Therefore, having a carefully crafted will can help steer clear of such situations, and it is designed to direct the dispersal of your assets as per your wishes. However, it is important to note that while a will is intended to achieve this, there may still be conflicts or legal challenges that could interfere.
Purpose of a Trust
A trust is a fiduciary relationship that encompasses three parties: the trustor, trustee and the beneficiary. The trustor is the individual who establishes the trust and hands over certain property or assets to a trustee. The trustee then holds the title to these assets or property on behalf of the beneficiary.
Trusts come in various shapes and sizes, each type with its unique features. The two most prevalent types are revocable trusts and irrevocable trusts. Revocable trusts, as the name suggests, can be altered or even canceled by the trustor during their lifetime. On the flip side, irrevocable trusts are more rigid and cannot be modified without the explicit permission of the beneficiary.
Major Differences Between Trusts and Wills
The differences between trusts and wills lie in several areas, including the types of property that can be inherited, the need for probate, privacy considerations and the conditions under which these legal documents are valid.
Here are four differences to keep in mind:
- Property that can be inherited: A will typically governs the distribution of real estate, personal property and financial assets. On the other hand, trusts can hold a broader range of assets, such as life insurance policies, business interests and digital assets. These types of assets are usually not included in wills.
- Required probate: Probate is a legal process that validates a will and oversees the distribution of assets. Probate for wills involves appointing an executor, validating the will, inventorying the decedent’s property, paying debts and taxes, and distributing the remaining assets. In contrast, trusts, particularly revocable living trusts, typically avoid the probate process, saving time and expenses.
- Private vs. public record: A key point of differentiation between wills and trusts is that a will becomes a public record once submitted to probate. This visibility means anyone can access the will’s details, leading to potential privacy issues or family disputes. In contrast, trusts remain private documents, maintaining the privacy of the grantor’s assets and the beneficiaries’ identities.
- When the legal document is valid: Legal validity in the context of wills and trusts implies that the document meets specific conditions to be enforceable. A will is considered valid if the testator is of sound mind, at least two witnesses are present during signing, and the will is free from undue influence or fraud. For a trust to be valid, it must clearly identify the trust property, beneficiaries, the terms of the trust and the trustee’s acceptance of their role.
When to Choose a Will or Trust in North Carolina
When choosing to create a will or a trust in North Carolina, you will beed to consider specific laws in the state. For example, North Carolina’s intestacy laws require that if a person dies without a will, their property will be distributed according to state law, which may not mirror your wishes. The probate process in North Carolina can be lengthy and costly, making a trust a potentially more appealing option for larger estates. Specific tax or property laws can also influence the decision.
Both estate planning tools serve different purposes and can even work together in a comprehensive estate plan. While a will becomes effective only after death, a trust can take effect as soon as it’s created and funded, allowing for potential incapacity planning and probate avoidance. Therefore, it’s essential to understand the features and implications for both before making a decision.
Bottom Line
A well-structured trust can bypass the often time-consuming and expensive probate process, allowing beneficiaries quicker access to their inheritance. In contrast, a will, which is simpler and less costly to implement, is subject to probate. This process can delay the distribution of assets and make the details of the estate publicly available. You may want to consult with a professional to help you decide.
Tips for Estate Planning
- A financial advisor can help you create the right estate plan so that your assets are protected and distributed the way you want. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Before deciding whether you need a professional, make sure you’re aware of the potential dangers of DIY estate planning.
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