When it comes to estate planning, the first thing that comes to people’s mind is to get a will. That is a very good step. But people also talk about setting up a trust. Should you get a trust? Or just a will? Or both? Whether your estate plan should be will-based or trust-based depends on a lot of factors.
A will-based plan is simple and straight forward, but also lacks control in when and how the assets will be distributed to your beneficiaries. On the other hand, trust-based plan takes more time and effort to set up. But it provide infinite control in how and when your assets will be distributed. We often suggest clients to consider two questions:
a) once your beneficiary takes the asset, what do you think he will do with it?
b) knowing that this is what he will do with the asset, are you OK with it?
For instance, suppose you leave $20,000 to your 28 years old son. Based on what you know about your son, he is likely going to spend the money within a few months in buying a new car or taking trips around the world. But you’d rather him put the money aside, and only use it for graduate school, or as down payment for his first home. In situations like this, you may want to consider using a trust. However, if you don’t care how he spends the money, then a will-based plan may be suitable for you.
There are also other factors that need to be considered when determining whether a will-based plan or a trust-based plan is more appropriate. These include nature and value of your assets, potential threats from creditors or divorcing spouse, financial maturity of beneficiaries, and beneficiaries receiving mean-based government benefits such as SSI or Medicaid service. An experienced estate planning attorney will be able to assist you in choosing the right plan.