What is a Will

A will is a legal document that states what you would like done with your assets and belongings after death. Beneficiaries are named on the will and an executor is in charge of making sure that all of the assets are distributed to the persons stated in the will. Beneficiaries can also be charities or children. If you have minor children then assigning them a guardian can be done on a will as well.
 
Without a will your entire estate will be subject to automatic state law which can often be messy, lengthy, and costly. The smoothest transition would be with a will that clearly states who gets what.
 

What is a Trust

A trust is a legal entity that allows property and assets to be held for the benefit of a person. Property placed in trusts avoid the probate process and pass directly to beneficiaries. Like a will has an executor, a trust has a trustee. The trustee manages the trust for the benefit of the beneficiary.
 
Trusts can be for anyone, and they should be used by many. Trusts can help reduce many of the costs associated with the passing of someone. By avoiding probate a family can save thousands, and trusts can also reduce estate taxes.
 
The two main types of trusts are revocable and irrevocable trusts. Revocable trusts are changeable and can be adapted, changed, and managed throughout a person’s lifetime. The trustee can continue to manage all of the assets within the trust during their lifetime even though the trust is the technical ownership of the assets.
 
Irrevocable trusts are different in that they cannot be managed or controlled by the creator. The creator must name a trustee that will act in the benefit of the trust but the creator will have no say over the assets that are placed in the trust.
 
Placing property or assets into a trust will make it more difficult to access those assets. Which creates a peace of mind for those that wish to make sure their beneficiaries will have access to those assets.

The difference between Wills and Trusts

While both wills and trusts allow you to designate beneficiaries, there are a few key differences between the two. A will doesn’t go into effect until after the creator dies. On the other hand, trusts go into effect immediately after they are created.
 
Wills are simpler and require much less to set them up. The big drawback is that they must go through the probate process, which can be expensive and drawn out. Trusts, however, do not have to go through the probate process and can also help to avoid some estate taxes.
 

Prenups in estate planning

There are sometimes times that an individual would like to give everything to their children and opt not to give anything to their spouse. There is a slight issue with this because spouses generally have a legal right to inherit a portion of their deceased spouse’s estate.
 
If a will were to state that all property was to be given to the children and none to the wife, the court would likely step in and override the will. The right to inherit is known as “elective share”.
 
Those rights can be waived, but not by a will or a trust. A prenup must be negotiated prior to marriage that outlines the waiving of those elective share rights. If those rights are waived then it is possible to leave all of your estate to your children.

How Wills, Trusts, and prenups can create a comprehensive estate plan

Passing without a will or a trust will leave all of the division of assets to state law and the courts. The same can be said with prenups as they pertain to divorce. If you go into a divorce without a prenup then the division of property will be done according to state law.
 
Using all three (wills, trusts, and prenups) can help create the best-case scenario for whatever life throws at you.
 
Let’s use an example to show how using a combination of all three can create a comprehensive estate plan. Say we have Tim, a widowed father of three. A few years after his wife’s death he decides to marry a girl named Wendy. Wendy had accumulated a significant amount of wealth before their marriage. Tim was concerned that if something happened to him, his children would have significant issues considering they had already lost one parent. Prior to getting married to Wendy, Tim and Wendy entered a prenuptial agreement where Wendy agreed that all of Tim’s premarital property and any property he acquired independently during the marriage is his separate property. Wendy also waived her right to receive any of Tim’s separate property in the case of his death. This agreement means that Tim will be able to pass down all of his property to his kids.
 
Time then created a trust that named his kids as the beneficiaries and placed all of the property he wanted them to receive in the trust. Since the property is in a trust, the assets will be passed down directly to his children after his death. Tim then created a will that named the children’s guardian in the case of his death. The combination of all three (will, trust, and prenup) legal documents helped to make sure his loved ones were taken care of.
 
Looking at another example, let’s consider Amy. Amy is twice divorced and has two children from the second marriage. Amy meets Stephen and decides that marriage might be worth another go. Amy has gone through divorces before and understands that they can be messy and complicated. Amy wants to protect her assets if she ends up in another divorce so before the wedding, Amy creates an irrevocable trust and places several assets she wants no future ex-husbands to reach. Amy and Stephen also entered into a prenuptial agreement where they agreed their right to alimony in the future. They also agreed that Amy’s premarital property would be non-marital.
 
A few years later, Amy is convinced that Stephen is in for the long-haul. Amy understood that there was a chance that she would likely die first, and she wanted to make sure that her husband would be taken care of after her death. Amy then updated her will to make sure that Stephen got to keep the house after she passed. Amy was able to use all three forms of estate planning to ensure the safety of herself and everyone around her.