Understanding the difference between a trust or will and why it matters when planning your estate.
You’ve decided to start seriously thinking about estate planning, but after doing some research, can’t decide whether you want to create a trust or a will. You’re not alone—the estate planning process can be confusing. But instead of choosing between one or the other, we are here to help you first understand the difference between a trust or will so that you can take the best route for your estate.
What is a Will?
A will is a document that goes into effect after you pass away. A will is essentially an inventory of your assets and property, that designates how those assets will be distributed and to whom. The person who makes sure this happens after your death is called the executor, and is appointed in your will. If you have children or dependents, the will is where their guardian is named. A will is a public record that helps prevent your assets from ending up in probate court—although it is sometimes unavoidable, depending on the nature of the assets. Probate is a legal process that ensures your will is reasonable, your debts and taxes are paid, hears objections to your will, and observes the entire process to ensure your assets are distributed properly. Probate is a time-consuming and costly process that can be minimized with the right estate planning measures.
What is a trust?
A trust takes effect as soon as it is established and contains assets and property you would like to pass along before or after your death. If you have a trust, any assets and property within your trust may be mentioned in the will, but will instead be distributed through the trust. You can place money, real estate, stocks, bonds, automobiles, and any other tangible or intangible items of value within the trust. Once you do so, however, you relinquish ownership to the trust. It is possible to name yourself as the trustee, however if you take that route be sure to designate a successor trustee who will distribute your assets to your beneficiaries upon your death. Many individuals set up trusts to avoid probate, which can save a lot of time and money. In addition, having a trust ensures that records of what assets are transferred to your beneficiaries remain private.
Which one is right for you?
The truth is that both wills and trusts are vital aspects of the estate planning process. Without a will, decisions regarding how your assets and personal property are distributed will be left up to the courts, unless they are secured within a trust. However, a trust will not protect the transfer of guardianship over your minor children. When combined, and properly configured, both wills and trusts have great power to secure your legacy. Want to learn more about using wills and trusts in estate planning? Contact us for more information.