According to recent research by Caring.com, even though the majority of Americans understand the importance of estate-planning documents, such as a will or a trust, less than one-third currently have one in place.   

As an active-duty servicemember or Veteran, the best way to protect your loved ones is to plan ahead. Military families often have unique needs and benefits, and a will alone may not offer the protection, privacy, and planning required. Depending on your situation, establishing a trust could be a good option for you and your family. But how do you know what will be the best fit? 

To help you determine the best strategy for your estate, here’s a breakdown of the key differences between a will and a trust. It’s also important to speak with your AAFMAA Wealth Management & Trust (AWM&T) Relationship Manager, who can offer personalized advice based on your unique circumstances. 

Will 

A will is a legally enforceable document that, among other things, allows you to name an executor who will collect and distribute your assets to your beneficiaries after your death. Without a will, your estate will be subject to state laws, which may not align with your wishes. A will is also used to name a guardian for minor children and to specify funeral arrangements. 

It's important to review your will periodically to ensure it reflects any significant life changes, such as marriage, the birth of children, or the acquisition of new assets. This ensures your estate plan remains up-to-date and aligns with your intentions. 

Once you pass, your will must be filed with a probate court to ensure it is valid and your assets are distributed as instructed. The probate process can be time-consuming, expensive, and public, and it may involve multiple proceedings if your property is held in different states, which is common among military families. 

A will alone does not allow assets to be distributed over time, which can be crucial when beneficiaries are young. For example, an 18-year-old who inherits $250,000 may make different financial decisions than a 35-year-old receiving the same amount. 

Trust 

A trust is also a legally enforceable document that allows you to distribute your assets to beneficiaries. Though there are many types of trusts, a revocable living trust (often called a “living trust”) is the most common and is often used in combination with a will as part of a comprehensive estate plan.  

A revocable living trust is created during your lifetime, and you — as trustor and trustee — have full control over your assets. You designate the beneficiaries of your trust, and a successor trustee to manage those assets if you are no longer capable of doing so. In an irrevocable trust, the grantor cannot serve as the trustee and must name someone else to manage the trust. In both cases, a successor trustee assumes management of the trust when the original trustee has died or becomes incapacitated.  

Why a Successor Trustee Is Important 

Choosing a successor trustee is one of the most important decisions you will face when creating a trust, as this individual or institution will be responsible for managing and distributing your assets in the event of your incapacity or death. 

Successor trustees are crucial because they ensure the seamless administration of your trust, avoiding delays or legal challenges that could arise if no one is named to take over management. A family member or close friend may seem like a natural choice but might not possess the required expertise or have the time to properly fulfill the responsibilities. Additionally, depending on family dynamics, conflicts could develop among beneficiaries if one successor trustee is chosen over another.  

Working with a corporate trustee, such as AAFMAA Wealth Management & Trust, can alleviate these concerns. Corporate trustees bring impartial expertise and are held to a fiduciary standard, ensuring they act in the best interest of the trust and its beneficiaries. Unlike an individual trustee, a corporate trustee has no risk of failing to act due to illness, age, or personal issues. Furthermore, corporate trustees offer the expertise, capacity, and liability protection necessary to administer the trust in compliance with applicable laws. 

Key Considerations When Establishing a Trust 

When creating a living trust, it’s important to understand the following: 

• Funding the Trust: For a trust to be effective, you must transfer assets into it. This process, known as "funding the trust," involves retitling assets — such as real estate, bank accounts, and investments — in the name of the trust. Without this critical step, those assets may still go through probate. 
• Avoiding Probate: A trust can bypass probate court, saving time, expense, and public exposure of your estate. However, probate laws vary widely by state. In some states, the process may be straightforward or have high asset thresholds, making it less critical to avoid. Familiarizing yourself with your state’s probate requirements is essential. 
• Managing Assets During Incapacity: A trust allows for seamless asset management if you become incapacitated, avoiding the need for a court-appointed conservator. 
• Privacy: Unlike wills, which are filed publicly in probate court, trusts remain private and are not subject to public record. 

Additional Protections Provided by Trusts 

Holding assets in trust can also safeguard them from creditors, divorce settlements, or reckless spending by beneficiaries. Trust terms can allow for assets to be distributed gradually, such as in stages tied to age or life milestones. For example, a beneficiary might receive one-third of the inheritance at age 21, another third at 25, and the final portion at 30. 

For beneficiaries with specific needs, such as those with disabilities, a special needs trust can ensure financial support without jeopardizing eligibility for government assistance programs. 

The Bottom Line 

Establishing a living trust can offer a level of protection, privacy and planning you can’t get from a will alone. Because managing a living trust can be complex, it’s important to choose the right trustee. If you’d like to learn more or get personalized advice, connect with AAFMAA Wealth Management & Trust today and take the first step toward securing your legacy. 

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This article was originally published October 28, 2020.