Most people understand that having some sort of an estate plan is a good thing. However, it may feel like a struggle to take the steps to get that estate plan in place. Sometimes, of a lack of understanding of the nuances between the different legal frameworks can throw your plan off. If you don’t understand how wills and trusts work, you may wonder why you need them. Let’s look at the difference between a will and a trust and why you might consider both.
Dying Intestate (Without a Will or a Trust)
If you have children but no spouse and die without a last will and testament or trust, a scenario involving North Carolina intestate law will play out. If you die intestate (with no will or trust), your estate will go through probate and all the world will know what you owned, what you owed, and who got what. Probate court processes can last months or even years to settle your estate.
Your mortgage company, car loan company, and credit card companies will all seek payment on balances you owed at the time of your death. In addition, if you had Medicaid coverage at any point for long-term care costs, North Carolina Medicaid will also seek recovery of the expense for your care. In some cases, your heirs may sell the family home to cover the debts they owe to creditors.
After that, state law will decide who gets what and when.
- For example, if your only heirs are your children and you have not provided any instructions, state law will mandate divvying up proceeds equally.
- Your older children will get their shares immediately if they’ve attained adulthood.
- But, the court will appoint a guardian to manage the money for your minor children until they become adults.
- Shockingly, that guardian can charge a lot of money and be a total stranger – as can the guardian who raises your child.
- Yes, if you die without a valid will, the court, not you, will decide who raises your minor children.
Keep in mind that since your death has been published to alert valid creditors, it’s not uncommon for predators (fake creditors) to come forth and make demands for payment – even if they’re not owed anything.
The bottom line? Dying intestate allows state law and the court to make all the decisions on your behalf – regardless of what your intent might have been. Publicity is guaranteed.
What Does a Will Do?
If you die with a valid will, your assets will still go through the probate process. However, after creditors have been satisfied, the remaining assets go to whom you’ve identified in your will.
- If you want to leave money to your children and name a guardian for the minor ones, the court will usually abide by your wishes.
- The same holds true if you specified that you wanted to give assets to a charity, your Aunt Betty, or your neighbor.
- Keep in mind that predatory creditors are still an issue as your death is publicized. Even with a will, probate is a public process.
The bottom line? While a court oversees the process, having a will allows you to tell the court exactly how you want your estate to be handled. But, a public probate is still guaranteed.
Dying with a Trust
If you’ve created a trust, you’ve taken control of your estate plan and your assets. Trust assets are not subject to the probate processes. One of the most important benefits of trusts is that they are private. Notices are not published, so you avoid predators coming after your estate.
You’ll have named a trustee to manage your estate with specific instructions on how your assets should be dispersed and when.
- One word of caution – trusts must be funded in order to bypass probate.
- Funding means that your assets have been retitled in the name of your trust.
- Think of your trust as a bushel basket. You must put the apples into the basket as you must put your assets into the trust for either to have value.
When you establish a trust, you still need a will to pour any assets inadvertently or intentionally left out of your trust and to name guardians for minor children.
The bottom line? Trusts allow you to maintain control of your assets through:
- Your chosen trustee
- Avoiding probate
- Leaving specific instructions so that your children are taken care of – without receiving a lump sum of money at an age where they are more likely to squander it or have it seized from them.
We Can Help
Don’t let the differences between a will and a trust slow you down. Call us at Hopler, Wilms, and Hanna today and we’ll put together an estate plan that works for you and your family whether it be a will, trust, or both.