What’s the Main Difference Between a Trust and a Will?
When it comes to estate planning, you need to understand the difference between a trust and a will. This comparative guide has you covered.
A recent survey revealed that 67% of Americans have no end-of-life documents or plans in place. Whether it’s a will or a living trust, preparing to pass on your assets is one responsibility you can’t afford to skip.
And yet, many people don’t understand the difference between a trust and a will. Which is right for your situation and how can you ensure the best future for your loved ones?
That’s what we’re discussing today. Keep reading to find out.
What Is a Will?
Wills are legal documents that state an individual’s wishes in regard to the distribution of their assets. A will outlines what should be done with the property they own as well as how they wish for any dependents to receive care upon the individual’s death.
It’s crucial for parents to create a will if they have any minor children. This official document helps to protect them and ensure they receive the care they deserve. In short, writing a will helps to create a more stable future for your children.
So, what happens when someone dies without a will?
A person that dies without a will is intestate. In these cases, the probate court chooses who inherits the deceased’s properties and assets.
The probate court elects an executor for the estate, also known as a personal representative or administrator, who resolves the decedent’s affairs. The remainder of the estate is then distributed according to local law.
Dying intestate can get messy and cause rifts among family members. It puts a heavy burden on your children and can take quite a while to complete the process.
The Benefits of a Will
Everyone can benefit from writing a will, even if it’s a simple one. Contrary to popular belief, you don’t need to be wealthy to have one.
Preparing a will allows you to state your wishes for the distribution of your property and assets. Even if you don’t own a house, you may have a vehicle in your name. It’s also the best place to outline how you want to distribute your wealth.
Assets can be either tangible or intangible and include money in a bank, investments, jewelry, antiques, stocks, etc.
Perhaps you don’t have much in savings but you have some gold jewelry or a valuable painting. Creating a will ensures that you leave these valuables to the individuals specified. It can prevent arguments among your children or other family members about who gets what.
Parents with young children should always prepare a will. Writing one allows you to state who will care for your kids after your death. If you don’t specify this, the court will decide.
What Is a Trust?
Trusts are also legal arrangements that outline an individual’s wishes for the distribution of their assets. It involves a third party (trustee) holding the assets on behalf of a beneficiary until those assets are passed on.
Trusts are quite versatile and there are many types of arrangements. Traditionally, they’re used to pass on assets while potentially avoiding probate and estate taxes.
There are several benefits to setting up a trust arrangement. The beneficiaries gain access to the assets faster since the process avoids probate. There may also be fewer taxes to deal with.
Similar to creating a will, trusts give an individual control of their wealth and outline how they wish for it to be distributed.
Here are some different types of trusts:
- Revocable
- Irrevocable
- Charitable
- Special needs
- Special purpose
Trusts can also be simple or complex depending on the situation. Generally, creating a trust is a more complex process than writing a will. However, it’s better for individuals who wish for their beneficiaries to get the assets while they’re alive.
It’s best to speak with an estate planning professional to help you decide on the best course of action. They can help you choose which route to take and outline the differences between each option.
The Key Difference Between a Trust and a Will
Many people are familiar with both terms, but may not understand the difference between a trust and a will. After all, both are end-of-life arrangements.
The main difference is that wills can be subject to probate while trusts bypass it and are less likely to be challenged. Additionally, irrevocable trusts provide tax benefits. Wills are subject to an estate tax if the assets are over a certain amount.
So, what’s the best option for families? If you have minor children, a will is usually the best choice as it allows you to specify guardianship. Those who want to pass their assets on to an older beneficiary may select a trust arrangement instead.
Wills take effect after the individual’s death. Trusts are considered effective once signed and funded. Again, selecting the best option depends on your situation.
If you want to avoid any gaps in your estate planning, or if you have a complex estate, you can create both a living trust and a will. An example of a complex estate is when someone has multiple properties and investment accounts or large assets.
We Can Help You Through the Estate Planning Process
Will vs trust…what’s right for you? It isn’t always easy to answer that on your own. Thankfully, working with an estate planning attorney will teach you more about the difference between a trust and a will so you can prepare for the future.
Do you need more estate planning tips or guidance when it comes to end-of-life documents? Heartland Law Office is here for you. Contact us today or stop by our location and learn how easy and painless the process can be.