Do you know the differences between a will and a trust? Which one do you think takes effect as soon as you sign? Understanding these two important estate planning tools can help you determine which might best for your family, your heirs and for passing on your assets.
Why a Will?
A will is an important legal document that everyone should have at the ready. It outlines how you want your assets to be distributed, and to whom, after your death. Beyond simply distributing your property, a will:
- Names an executor to finalize your estate and carry out your wishes
- Names guardians for your children and their property
- Creates trusts for your children or other young beneficiaries
- Forgives debts
If you don’t have a will, the state in which you reside will determine how your assets are divided upon your death. Without a will, the court will choose among family members or a state-appointed guardian to raise your children. With or without a will, estates must go through the probate process. Having a will in place, however, speeds up the process, informing the court of how your estate is to be divided.
Why a Trust?
A living trust, or revocable trust, is the most common trust into which individuals might place their assets during their lifetime. A trust is a fiduciary arrangement, allowing a successor trustee (or third party) to hold and distribute assets on behalf of one or more beneficiaries.
The benefits of a revocable trust include that:
- It goes into effect upon signing
- The grantor, the individual who creates a trust, can change the terms, undo them, and freely move assets in and out of the trust’s ownership during her lifetime.
- Assets remain accessible to the grantor during her lifetime, while specifying exactly how, when and to whom the remaining assets will pass after her death
- Assets transferred to a revocable trust can be returned to the grantor at any time should circumstances or intentions change
- Assets are protected from a beneficiary’s creditors
- The estate and the distribution of assets can remain private and be allocated outside of probate
Key Differences Between a Will and a Trust
Both a will and a trust can be beneficial estate planning tools. A trust can be used to plan for disability or to provide savings on taxes. A will enables you to specify whom you wish to care for your children upon your death, and ensures that the courts don’t decide what happens to your estate upon your death.
In general, the main differences between a will and a trust include that:
- A trust deals with any asset it has been funded with, e.g., life insurance and property. A will can only cover property owned in your sole name at the time of your death.
- A will is public record and all transactions will be public, while a living trust is private and will be distributed in private upon your death.
- A living trust ensures that if you own out-of-state property at the time of your death, it will avoid probate. With a will, an out-of-state property will have to go through probate in the state where the property resides.
- A trust goes into effect as soon as it is created and can be used to begin distributing property or assets before death, at death, or afterwards. A will can only go into effect after you die.
Contact a Cole Harrison agent today to make sure you have all the right documents in place to protect your legacy.