Edited by 
Edited by 
An estate plan is a strategic way to secure your estate’s legacy and ensure your assets are distributed according to your wishes after you pass. In North Carolina, as in other states, wills and trusts are common estate planning tools. There are benefits and drawbacks to each, making it critical that you understand the key differences.
A financial advisor can help you create a robust estate plan for your needs in North Carolina.
Purpose of a Will
A will, also known as a testament, is a legal document that clearly communicates a person’s wishes regarding the distribution of their assets upon their death. Additionally, it names an executor to administer and ultimately distribute the estate.
A will primarily addresses the distribution of one’s assets and provides direction for executors and guardians, as appropriate. Without a will, the estate is considered intestate, and state law will dictate the distribution of the deceased person’s assets.
The risk is that this may not always align with the grantor’s original intent. For instance, in many jurisdictions, the laws dictate that a spouse becomes the sole inheritor of all assets in the absence of a will.
Having a thorough will can help avoid such situations by specifically directing the distribution of your assets according to your wishes. However, it is important to note that there may still be conflicts or legal challenges that could interfere.
Purpose of a Trust
A trust is a fiduciary relationship that encompasses three parties: the trustor, trustee and the beneficiary.
- The trustor is the individual who establishes the trust and hands over certain property or assets to a trustee.
- The trustee then holds the title to these assets or property on behalf of the beneficiary.
There are several types of trusts, each with its own unique features. However, the two most prevalent types are revocable and irrevocable trusts. Revocable trusts can be altered or even canceled by the trustor during their lifetime, but irrevocable trusts are more rigid and cannot be modified without the explicit permission of the beneficiary.
Major Differences Between Trusts and Wills
The differences between trusts vs. wills lie in several areas, including inherited property types, probate requirements and privacy considerations.
Property Types
A will typically governs the distribution of real estate, personal property and financial assets.
In comparison, trusts can hold a broader range of assets, such as life insurance policies, business interests and digital assets. These types of assets are usually not included in wills.
Probate Requirements
The legal process of probate validates a will and oversees the distribution of assets.
Probate for wills involves several steps:
- Appoint an executor.
- Validate the will.
- Inventory the decedent’s property.
- Pay debts and taxes.
- Distribute the remaining assets.
Meanwhile, trusts, particularly revocable living trusts, typically avoid the probate process, saving time and expenses.
Private vs. Public Record
A key point of distinction between wills and trusts is that a will becomes a public record during probate. This visibility means anyone can access the will’s details, which can lead to privacy issues or family disputes.
Trusts remain private documents, maintaining the privacy of the grantor’s assets and the beneficiaries’ identities.
Validity of Estate Documents
Legal validity in the context of wills and trusts implies that the document meets specific conditions to be enforceable. Each type of document has separate requirements.
| Will Requirements | Trust Requirements |
|---|---|
| The testator is of sound mind. At least two witnesses are present during signing. The will is free from undue influence or fraud. | Trust property must be clearly identified. It must specify beneficiaries and the terms of the trust. It must include the trustee’s acceptance of their role. |
When to Choose a Will or Trust in North Carolina
When choosing to make a will or trust in North Carolina, you must consider the state’s specific laws.
For example, North Carolina’s intestacy laws require that if a person dies without a will, their property will be distributed according to state law. This may not mirror your wishes.
The probate process in North Carolina can be lengthy and costly, making a trust a potentially more appealing option for larger estates. Specific tax or property laws can also influence the decision.
Both estate planning tools serve different purposes and can even work together in a comprehensive estate plan. While a will becomes effective only after death, you must create and fund a trust before it takes effect, allowing for potential incapacity planning while avoiding probate.
Therefore, it’s essential to understand the features and implications for both before making a decision.
North Carolina’s Intestate Succession Rules
Many people assume that if they die without a will, their spouse automatically inherits everything.
In North Carolina, this is only true in one specific circumstance: when there are no surviving children and no living parents. If either exists, the estate uses a formula outlined in the state’s intestacy statutes, regardless of the deceased’s wishes.
The formula treats personal property differently from real property.
| Personal Property | Real Property | |
|---|---|---|
| Types of Property | Cash, bank accounts, vehicles, belongings | Land, buildings |
| Typical Distribution | Surviving spouse generally receives first $60,000 in value, or $100,000 if no surviving parents and no children; Remaining balance split according to additional fractional shares based on survivors | Can result in a spouse and children becoming co-owners of a house rather than the spouse inheriting it outright. |
If someone dies with a surviving spouse and one child, the spouse doesn’t automatically receive the entire estate. Instead, the spouse and child divide the estate according to these statutory shares.
This means the surviving spouse may end up with only a portion of the home and other property. It could potentially force a sale to split the asset fairly between spouse and child.
This is exactly the kind of outcome a will or trust can prevent. Without one, North Carolina law decides these splits for you. It will use a fixed formula that has no way of accounting for your actual relationships, your spouse’s financial needs or your children’s circumstances.
A properly drafted will allows you to direct the exact division of your assets instead of depending on a broad statute not tailored to your specific family situation.
Bottom Line
A well-structured trust can bypass the often time-consuming and expensive probate process, allowing beneficiaries quicker access to their inheritance. In contrast, a will is subject to probate. A will is also simpler and less costly to implement. This process can delay the distribution of assets and make the estate’s details publicly available. Consider consulting an estate planning attorney or financial advisor to help you decide.
Tips for Estate Planning
- A financial advisor can help you create the right estate plan so that your assets are protected and distributed the way you want. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with 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, begin now.
- Before deciding whether you need a professional, make sure you’re aware of the potential dangers of DIY estate planning.
Photo credit: ©iStock.com/Morsa Images, ©iStock.com/Iaflor, ©iStock.com/shapecharge