Wills vs Trusts – The Differences Explained
It is a universal truth that we all die, and unfortunately you cannot take your life’s work and your accumulation of possessions with you. So what do you do with all your money and property after you die?
Do you really need to plan for what will happen to them? The simple answer is yes.
Without a comprehensive estate plan, the fate of your money and property is in the hands of the court. They will make the decisions about who will receive your real assets with little or no input from you.
This situation may be less than ideal. In addition, if you have a spouse, children or loved ones, they will be subject to the lengthy and stressful legal process and may need to hire the services of a lawyer to access the assets you initially wanted. place.
However, this situation is easy to avoid with a little advance planning. Instead of leaving uncertainty behind, simple estate planning allows you to leave a beautiful legacy and future for your loved ones.
Understanding a last will and testament
A will is a legal document stating how you want your assets to be distributed and who of your beneficiaries should receive it. If you have minor children, a will can also designate a guardian for your children, even if you and your spouse die.
If no guardian is appointed in the will
If no guardian is appointed in the will, your family may have to petition the court to become guardians of your children. However, the court will decide who becomes a guardian, and this may not correspond to your wishes.
A will does not take effect until you die, which means that you can change your will at any time before your death. However, it also means that the will will not protect you and your family in circumstances where you become incapacitated for work.
This means that if you become incapacitated before you die, your family may need to file a court order for child support and guardianship to take care of you.
This can be a time consuming and stressful process as your family may have to wait to access important finances to pay for medical expenses.
Designating a personal representative in a will
In a will, you designate a personal representative who is responsible for the settlement of your estate after your death. Before your assets can be distributed to your beneficiaries, your will must go through the court.
The personal representative is responsible for this and ensures the distribution of your assets among your heirs. For this reason, the personal representative should be someone you trust.
Finally, a will is not out of the way. Probate is a public process, which means that your will and the assets in the will become public. Probate can be a long and stressful process, especially if someone is challenging your will.
This can prevent your beneficiaries from receiving their inheritance. However, probate can be avoided with a living faith.
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Understanding a Living Trust
A living trust is one of the best and most popular methods of transferring your assets to your beneficiaries and preserving your estate.
There are different types of trust.
The two basic categories are revocable and irrevocable trust. Of these, the most common is a revocable trust. Why? Because of its flexibility.
A living trust is a revocable trust.
Unlike an irrevocable trust, a living trust can be altered, modified or revoked by its creator at any time before their death. An irrevocable trust cannot be changed and is much more permanent.
Why would anyone want an irrevocable trust? Some people create irrevocable trusts for family members with special needs. Other people make them for certain tax or credit shields.
If you’re not sure which one is best for you, it’s best to consult an experienced trust attorney who can advise you on best practices.
How does a revocable living trust work?
When someone creates a living trust, they are known as the grantor. Often the grantor is also the trustee of the trust while they are still alive.
The grantor places its assets in the name of the trust and then manages the trust and all of its assets as a trustee. They are allowed to move assets in and out of the trust and even sell assets that are in the trust, just like they do now.
Unlike a revocable trust, an irrevocable trust can’t be changed after it’s created. When you fund an irrevocable living trust and transfer your property into it.
Generally, you appoint someone else as the trustee to manage its assets. Unlike a revocable trust, you can’t move assets in and out of it and you can’t modify it.
Irrevocable trusts are used in special cases as they have some benefits and unique tax implications. Often times irrevocable trusts are used when creating a trust for a special needs family member or for individuals seeking creditor or tax shields.
Avoid probate court
The advantage of putting the assets in the name of the trust is that it avoids the courts. Avoiding probate court is one of the main advantages that a revocable living trust has over a will.
When the grantor dies, the person they named as the trustee’s successor takes over the management of the trust. They are responsible for the execution of the trust according to the wishes of the grantor.
They are also responsible for paying outstanding debts and taxes and for distributing the remaining assets to the beneficiaries of the trust. The trustee’s successor is similar to the personal representative in a will.
However, the trustee’s successor does not have to go through the courts to settle the estate the way a personal representative does.
Revocable Living Trust also plans for disability
Unlike a will, a revocable living trust also plans for disability. If the grantor becomes incapacitated before death, the trustee’s successor or other designated party may intervene to manage the grantor’s financial and medical care, along with the management of the assets in the trust.
While both a will and a revocable living trust are popular estate planning tools, a living trust has many advantages over a will.
In certain circumstances, an irrevocable trust may be justified. Before making a decision, it is usually best to consult Will vs Trust.
Planning For Incapacity or Disability.
It also plans for incapacity or disability of the grantor. If the can’t make medical or financial decisions on their own, the successor trustee or another appointed party can step in to manage the trust or make medical and financial decisions on behalf of the grantor.
As stated previous, a revocable living trust is very flexible as the grantor can change or amend it at any point during their lifetime.
They can also move assets in and out or sell any of the assets as they see fit. A lot of people opt for this flexibility and choose to create a revocable trust instead of an irrevocable trust.
Why Set-Up An Irrevocable Trust?
Some of the reasons people choose to set up this kind reason is that they have a special needs family member, or they are looking to set up a tax or credit shelter.
There are a variety of irrevocable trusts:
- special needs
- life insurance
- asset protection
- charitable remainder.
When comparing revocable vs irrevocable trust, it’s best to consult with an experienced attorney.
Experienced attorneys are trained in will, trust, and estate law and focus their practices on creating customized estate plans to help their clients achieve their unique goals.
Goals To Consider When Comparing Wills vs Trusts
Often times when comparing wills vs trusts, people ask “which document is better?”. The answer is, it depends on your estate planning goals.
You see, an estate plan is only as good as the goals it is built around. In other words, what you want your estate plan to accomplish will dictate what legal documents are used to construct it.
That’s why it is always good to start by analyzing some of your personal goals before deciding on which document is best when comparing wills vs trusts.
Highlight some goals to consider when comparing the two.
Do you want someone to be able to step in and manage your assets if your become incapacitated?
This is an important question to ask yourself before you start estate planning. It is very common for people to become incapacitated at some point before they die. Most people think that estate planning is only planning for death.
This couldn’t be further from the truth.
Comprehensive estate planning also allows you to plan for situations where you become incapacitated and can’t make your own medical and financial decisions.
If this is a concern for you when comparing a will vs trust, you may want to consider a living trust vs will. That’s because a living trust allows you to appoint a successor trustee to step in to manage your assets if you become incapacitated.
A will, on the other hand, only comes into effect when you die.
Do you want your assets to transfer in the most efficient way possible?
This is one of the primary goals for most people when they compare the difference between a living trust and a will.
When analyzing a will vs trust, both allow you to pass your assets onto your loved ones after you die. They also let you specify who should get what, and how much they should receive.
However, the transfer of the assets is very different. That’s because a will must go through probate court, but a living trust avoids probate court.
This is a key difference because probate court can be a long, stressful, and expensive process for your family to have to go through after you pass away in order to get your assets.
If you choose a living trust, the transfer of your assets will happen privately often in a matter of days or weeks instead of months or potentially years, depending on what happens in probate.
The most efficient way to transfer your money and property is with a living trust.
Do you want to be able to control your finances after you pass away?
Some people wish to control their finances after they pass away so they can assign milestones that need to be accomplished prior to their loved ones receiving an inheritance.
For example, a couple with young children may want to make sure that their kids don’t receive an inheritance until they reach a certain age or graduate from college.
This is just one example to give you an idea of what is possible. If keeping control of your finances is important to you, you may want to consider a living trust.
Top Wills and Trusts Fallacies You Should Know
Most people don’t like to think about death, but it is inevitable for all of us. When we die, our “things” don’t die with us. Wills and trusts guide families in the division of the estate. Since most people want to avoid the subject of death altogether, they don’t control what will happen to their possessions and may believe some untruths or make excuses. Here are some of the main fallacies about wills and trust.
1.) I don’t need a lawyer to draft my will. I will download a form from the internet, fill it out and have someone witness it.
Even before the internet, there were people who tried to do their own thing. Even if you don’t think you have a complicated estate, you should seek the advice of a lawyer. A lawyer can guide you through the complicated estate laws and protect your assets for your loved ones.
2.) I don’t have enough assets to have an “estate”.
Estate planning is not only aimed at dividing your assets in the event of death. Estate planning answers a number of important questions, including who will manage your finances when you die and the provisions for your children.
3.) I’m in my twenties or thirties. I don’t have to think about estate planning.
The truth is that death doesn’t care how old you are. Local obituaries each week list some people who probably thought they would live for decades to come. Even if you are single and have no children, it is a good idea to decide what will happen to your finances and assets when you pass away.
4.) I write a will so that my friends and family do not have to deal with the court.
You can’t avoid probate just because you have a will. The probate court will help your loved ones to erase title to any assets you own in your name only upon your death.
5.) I am setting up a trust so there are no estate taxes.
Remember the old saying that only two things in life are certain: death and taxes. Even by setting up a trust, you can’t avoid paying taxes. You can create a strategy that allows you to reduce how much you pay. This is where the lawyer can help.
Thinking about death and organizing your estate is not a pleasant task. But planning your estate well can help your loved ones avoid problems after you’re gone.
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