Readers with personal finance questions can now get expert insight through the Lebo Beat. John McGowan, financial advisor with Carson Wealth will answer select reader-submitted questions and provide professional guidance on topics such as investing, retirement, estate planning, taxes, and other financial matters. If you have a question, you would like considered for a future column, email it to info@lebobeat.com. Here is the first answer to question submitted by a Lebo Beat reader.

I’m working on my estate plan and a little confused—what’s the difference between a will and a trust, and why is it so important?

 – Tom McDonnell 

Hi Tom, thank you for your question.  

Estate planning is a critical piece of the financial planning process.  If you have ever been through an estate settlement process, you may know how time consuming and frustrating it can be — especially if there were no estate documents or beneficiaries listed on the accounts.  By setting up the correct plan while you are alive, you can ensure all of your hard-earned assets are directed according to your wishes smoothly and with the least amount of taxes.  

It is recommended to consult with an attorney to draft and review your estate documents to ensure that they align with current laws and regulations.

Trusts and wills are created as directives to transfer your assets according to a predetermined plan.  There are several differences between the two which can help you decide which may be the best for your particular situation.  

First, a trust allows your family to avoid probate which can be costly and add significant time to settling an estate.  In addition, real estate cannot be included in a will and must pass through probate. Trusts are written in privacy and hold their ground more solidly than simple wills if contested by outside individuals (e.g. creditors, heirs at law, even if disinherited, etc.).  

Wills provide significantly less privacy once the estate is subjected to the public process of probate.  A will takes effect post-mortem, while a trust can be enacted during one’s lifetime and will continue after death.  An executor is named to a will who is responsible for distributing your assets upon death, whereas a trustee manages the assets of a trust according to your instructions and can be put in place in preparation for your children’s future.  

Trusts can add complex language to help protect your assets from future divorces or litigation.  Certain trusts can also protect your assets and residence from nursing home costs, and special needs trusts can be created for children with disabilities to preserve federal assistance into perpetuity.  

The final difference is the cost.  Wills are generally simpler and less costly to create, while trusts are more complex and can get expensive quickly depending on the details and type of trust you would like to set up.

Your estate plan is not a set-it-and-forget-it type of situation.  It should be reviewed every few years as laws and regulations change to ensure that your documents are still written within the scope of current law. 

It is also equally important to have all your account beneficiary designations and account titling align with the documents that were created.  There are many cases where people have spent the effort creating their documents but did not coordinate them with their financial accounts.  This leads to a prolonged, frustrating process when attempting to organize the estate after passing.  

When choosing to work with an advisor you should ask if they help coordinate your estate documents with your overall financial plan.

If you would like to have your question answered in a future section, please email them to Pittsburgh@carsonwealth.com

Questions answered in Lebo Financial Answers are provided by John McGowan, CFA MBA at Carson Wealth.