One of the more common questions we estate planners hear during initial consultations is for an explanation of the difference between a will and a trust. Both documents provide a mechanism by which to distribute a person’s assets upon his/her death. Depending on the circumstances, one rather than the other, or both make the best sense.

For people with significant assets, a trust is likely the most efficient means to distribute wealth. Through the use of a trust, one is able to more easily reduce any potential estate tax liability. Today, for federal estate and gift tax purposes, an individual is permitted to transfer up to $5 million in wealth to any person or entity he/she wishes during life or at death. For Illinois estate tax purposes, that exemption amount is currently $2 million. Moreover married U.S. residents are able to transfer limitless wealth between each other without any tax consequences. Mechanisms may be built into a revocable trust (the sort of trust most commonly used for estate planning purposes) to fully take advantage of the federal exclusion amount and to provide adequate support to a surviving spouse.

Aside from tax concerns, many people use trusts as a means of keeping their affairs private. Unlike a will, which must be filed with the county upon a person’s death, a trust is a private document that need not be filed or recorded with any government office. This means that the public may not access the information provided within the pages of a trust.

A fully-funded trust does away with the need to open a probate estate upon a party’s death. Assets held by an individual in his/her own name require court authority in order to transfer the assets to another party. Although not generally a long and involved procedure, the probate process can be daunting and adds a level of complexity during what is already a trying time for surviving loved ones. A trust does away with court intervention where assets are titled to the trust during the life of the grantor. Often a will is a drafted along with a trust. This will, drafted in conjunction with a trust, is often called a “pour-over will.” A pour-over will merely instructs that any assets not transferred to the trust during a person’s life should be distributed to the trust and administered according to its terms.

Still, a stand alone will may be an appropriate dispositive document under certain circumstances. People of more modest means may use a will. This is a more economical option and ensures that a party’s assets will be distributed as they wish, and not according to statute. Also, where a person’s estate, not including the value of real estate, or the value of assets that pass by virtue of their own beneficiary designations (like IRAs 401(k)s and transfer on death or pay upon death accounts) amounts to less than $100,000, a small estate affidavit may be used in order to transfer assets without the need for a probate proceeding.

In any event, having a plan in force is essential to ensuring that your wishes are carried through. The beginning of the year is a fantastic time to think about getting your affairs in order or to revisit existing plans to determine whether recent changes in the law or changes in your personal circumstances warrant revisions.