Wills and trusts are important tools for managing and distributing your assets when you die. Think of a will as a legal roadmap dictating how your estate will be divided up following your passing. Trusts, on the other hand, serve as storage boxes where your assets are held by a third party – a trustee – for your beneficiaries. Understanding these legal instruments and their differences in Illinois is the first step to ensuring your assets are distributed according to your wishes and without unnecessary conflict. A financial advisor with estate planning expertise can also be a valuable resource during this all-important process.
What Is a Will?
A will, or “last will and testament,” is a legal document that lays out how an individual’s estate will be administered upon their death. In essence, wills help guarantee that your wishes are fulfilled regarding your estate. Beyond your assets, you can also use a will to appoint a guardian for any minor children you have and dictate your desired funeral arrangements.
When a person dies, their will typically goes through a legal process known as probate. This court-supervised procedure is aimed at validating the deceased person’s will, paying outstanding debts and distributing assets as per the will’s instructions.
In Illinois, wills must be executed by a mentally competent person who is 18 years or older with the presence of two credible witnesses who are not beneficiaries to the will. They should also designate an executor who’s responsible for carrying out the instructions outlined in your will after your death. It’s essential to choose someone trustworthy and reliable for this role.
What Is a Trust?
A trust is a legal entity that allows individuals to separate their assets and property for specific purposes, often to benefit themselves or others.
A trust involves three primary parties: the grantor (also called the settlor or trustor), the trustee and the beneficiary. The grantor creates the trust, transfers assets into it, and outlines the trust’s terms. The trustee, which can be a person or an entity, manages these assets according to the trust’s instructions. Beneficiaries are those who receive the benefits or assets from the trust.
Unlike wills, trusts bypass probate, allowing direct and prompt distribution of assets without court intervention. As a result, they do not become public records.
In Illinois, trusts can be established during the life of the grantor or after their death, as outlined in their will. Moreover, trusts can be used to minimize estate taxes. Since Illinois levies its own estate tax on top of the federal tax, a well-structured trust can help reduce the taxable value of your estate, potentially boosting the size of your heir’s after-tax inheritance.
Will vs. Trust: Key Differences
While they’re both estate planning tools, wills and trusts have their own set of advantages and disadvantages. Understanding the key differences between them is crucial in making the right choice for your estate. Here are six key differences you should keep in mind:
Purpose
Wills and trusts serve different purposes in estate planning. A will outlines your wishes for the distribution of your assets after your death. It is also where you name guardians for minor children and an executor to manage your estate. On the other hand, a trust can serve multiple purposes, including asset management during your lifetime and the seamless transfer of assets to beneficiaries after your death.
Probate
One of the most significant differences between wills and trusts is their interaction with the probate process. A will typically needs to go through probate, which can be a time-consuming and costly process, often taking several months to complete. In contrast, assets held in a trust usually bypass probate, allowing for a smoother and quicker distribution of assets to beneficiaries.
Control, Flexibility and Specificity
Wills provide a degree of control, but they may not offer the same level of flexibility and specificity as trusts. Trusts allow you to specify detailed instructions for the management and distribution of assets, including conditions and timelines for distributions. This level of control and specificity is particularly useful for individuals with complex family dynamics or unique asset distribution preferences.
Privacy
Privacy is another distinguishing factor between wills and trusts. Wills become public record during the probate process, which means anyone can access information about your assets and beneficiaries. Trusts, on the other hand, are generally private documents, offering a greater level of confidentiality regarding your estate planning decisions.
Incapacity Planning
Wills typically outline your wishes regarding the distribution of your assets after your death. However, they don’t address potential incapacity during your lifetime. In contrast, trusts can be valuable incapacity planning tools. When you create a trust, you can name a successor trustee who can step in and manage your assets if you become incapacitated. This ensures that your financial affairs are handled according to your wishes. Trusts can also provide detailed instructions on how your healthcare decisions should be made if you are unable to communicate your preferences.
Taxes and Costs
Estate taxes and costs associated with wills and trusts vary depending on your individual circumstances and the laws of your state. Generally, trusts may offer potential tax benefits and can be more cost-effective in the long run, considering the avoidance of probate expenses. However, they can be costly to set up and manage.
Do I Need a Will in Illinois If I Have a Trust?
In Illinois, having a trust doesn’t necessarily mean that you can forgo creating a will entirely. While trusts are excellent for avoiding probate and providing specific instructions for asset distribution, a will still serves a crucial purpose.
Firstly, a will can act as a safety net to capture any assets that were not properly transferred into the trust during your lifetime. Sometimes, people forget to transfer certain assets or acquire new ones after establishing a trust. A will can ensure that these assets are distributed according to your wishes.
Secondly, a will allows you to appoint a guardian for any minor children or dependents you may have. This is a vital consideration, as a trust typically deals with financial matters, not guardianship.
Furthermore, a “pour-over” will can be used in conjunction with your trust. This type of will essentially acts as a backup, directing any assets not already in the trust into it upon your passing.
Bottom Line
The choice between a will and a trust in Illinois depends on your individual circumstances and goals. While wills are more straightforward, trusts offer benefits such as privacy, avoidance of probate and greater control. Then again, it’s not an either-or proposition. Having both a trust and a will may offer you peace of mind knowing that your estate is organized and your wishes will be honored.
Estate Planning Tips
- Trusts aren’t a one-size-fits-all estate planning tool. While trusts can either be revocable or irrevocable, they can also be designed for specific purposes like caring for a person with special needs or setting up future generations with financial stability. Here’s a closer look at some of the common variations of trusts.
- A financial advisor can help you assess your estate planning needs and organize your assets to be distributed to your heirs. 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.
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