When developing an estate plan, clients frequently ask whether they should have a Will or a Trust. This question depends on an individual’s unique situation and family makeup. A Will and a trust distribute assets after death, but they differ in how they work while you live. The most notable difference is that a trust can avoid probate, while a will must go through the process.
What is a Will?
A will is a legal document that specifies your desires about the disposition of any property you own. It typically names beneficiaries and determines how, when and to whom assets should be distributed, including in cases of incapacity. A will may also provide for guardianship of minor children and special instructions regarding any pets you might have. On the other hand, a trust is a fiduciary arrangement allowing you to transfer assets outside of probate. A trust can be structured to accomplish various goals, such as protecting an heir from creditor claims or managing state income taxes. It can also preserve assets for disabled heirs, avoid or minimize gift and estate taxes, or protect the privacy of your estate. A will is essential for everyone who owns assets, even small ones like a family home, antique furniture or personal collections. If you die without a will, your estate will be governed by your state’s laws of descent and distribution, which may leave your loved ones to deal with expensive probate fees and the possibility of fighting over who gets what. Making your wishes clear in a will can help save your family from costly and time-consuming litigation after you’re gone. In addition, a choice can include provisions for end-of-life care, such as funeral arrangements and medical decisions.
What is a Trust?
A trust is a legal entity to manage your property according to your wishes. The trustee (often yourself or a financial institution) is responsible for managing and investing assets for the benefit of beneficiaries under the terms of the trust agreement. A trust can be revocable or irrevocable. The grantors of the faith—the people who establish it—are often the same people named trustees, or they may be separate individuals. While a will typically takes effect after death, a trust becomes effective during the grantors’ lifetime. It can protect them against incapacity while giving them control over their assets and allowing them to avoid the lengthy probate process. In addition, a trust can eliminate the need for a court-appointed guardian or conservator and help reduce taxes. Trusts are often used to transfer wealth to children and grandchildren, care for disabled family members, keep assets safe from a spouse’s creditors or lawsuits, or prevent heirs from selling or wasting assets. A trust may be established to manage a small or large estate, and the grantors can tailor it to meet nearly any objective. Unlike a will, a trust does not require submission to the court for settlement and can offer privacy advantages.
What is the Difference Between a Will and a Trust?
One of the primary distinctions between a will vs trust is that a will only contains assets in your name at death, whereas a trust can include whatever assets you transfer into it. A choice is also subject to probate court, although a trust is not. Probate can be costly and time-consuming, so beliefs have a significant benefit. Trusts can also allow for greater control over your assets, as they can set specific terms or conditions for distribution. For example, a trust can stipulate that beneficiaries only receive their inheritance once certain criteria are met, such as when they reach a certain age or after graduating from college. In addition, there are many types of trusts to choose from, including revocable and irrevocable. Whether or not you need trust will depend on your situation. For instance, a simple will suffice if you have a smaller estate and want to ensure your family members have access to your financial accounts in the event of your incapacity. A trust is more suitable if you have larger assets and would like to bypass the probate process and save on taxes.
What Is the Distinction Between a Revocable and an Irrevocable Trust?
There is a big difference between a revocable trust and an irrevocable one. A revocable trust can be changed if the grantor (creator) is still alive and of sound mind. It allows for the transfer of assets like land, money, and heirlooms to be titled in the name of the trust. It also bypasses probate, which can be costly and time-consuming. On the other hand, an irrevocable trust can’t be easily modified, canceled or terminated. This is because the grantor no longer owns any of the assets placed into it. It is like putting grandma’s cookies into the jar for her grandchildren. Once there, they can either be eaten by the kids or sold to the local bakery. A Trust isn’t only a document to take effect after death; it can also be used to set forth your wishes while alive and help prevent family disagreements over what you would want done should you become incapacitated. Trust can save your loved ones from going to court to determine what’s best for you. That way, they can follow your wishes. This type of trust is called a Living Trust or Revocable Trust. It can be a good option for many people.