You probably came to read this because you’ve been working hard for your money, and you want to make sure that things remain fruitful even if you are gone. Right? Well, first of all, that is wise of you. Second, you came to the right place for information.
Trusts and wills are legal documents that ensure assets are passed down to heirs per your wishes. They both can be essential components of estate planning. There are significant differences between trusts and wills, including when they come into effect and whether they can be disputed. Depending on your situation, you may only require one or the other. Still, some people use both to achieve different results. The right strategy, however, depends on your circumstances. For some, a living trust can be a practical and valuable option. For others, it might be a waste of money and time.
Still, as a person who is looking to choose between the two, which option is righteous? To know the answer, you need first to understand the ins and outs of each testament. Here, we’ll cover some brief and essential aspects of trusts vs. wills and help you determine which one is the most useful.
Will vs. Trust
While trusts and will have a lot in common, there are a few key differences between the two. In the end, both are ways of determining who will receive your assets. They do it in different ways, each with its own set of benefits and drawbacks. Before we get into the will vs trust debate, here’s a quick description of what the two entail.
- Trust
A living trust is a legal agreement. It places your assets in trust for your benefit during your lifetimes, such as real estate, bank accounts, vehicles, and other valuable property. It also specifies where you want these assets to go after your death.
- Will
A last will or testament, also known as a will, is a legal document that specifies how your holdings will get managed after your death. The creator of a will, known as the testator, must be an independent person of sound mind. The testator appoints an executor or personal representative to handle estate affairs after their death. The distribution of an estate can include appointing guardians for pets or minor children, distributing assets and property to beneficiaries, making funeral arrangements, and more.
Three Key Differences between Trusts & Wills
Both trusts and wills are estate planning tools that can assist you in managing your affairs. Before selecting whether one or both is best for your scenario, consider a few crucial differences.
- Date of Application
A will does not take effect until you die. In contrast, a living trust becomes active once it is established and financially backed. It means that a trust can safeguard and direct your holdings if you become mentally incapacitated, which a will cannot.
- Privacy and Probate
Your estate will go through probate whether you die without a will (called “intestate”) or with one. It means that a probate court must verify your will and authorize your trustee to distribute assets under the terms of your will. Probate can be a time-consuming and costly process in some states. Without a will, there are generally more hurdles to jump through and more effort and cash. Probated testaments become a public record in all states, which means that anyone can look up the specifics of your will. A living trust may be a nice choice if you want to keep your personal financial affairs private.
- Cost & Complexity
Trusts can be more complex and require more paperwork to establish, so they are generally more expensive to prepare upfront than wills. However, attempting to avoid probate in the future can offset the cost of establishing a living trust. A living trust requires financial assistance to function properly. It means that the various assets housed in the trust — accounts (retirement, investments, banking), property, and so on – must be properly titled in the name of the trust. After completing the legal documents, an estate planning attorney will often explain how to cash the trust and name the appropriate beneficiaries for each asset.
When dealing with assets owned in a living trust, there may be additional difficulties. For example, refinancing property within a trust can be challenging. Some lenders will look over the living trust agreement. In contrast, others may require the grantor to eliminate the property from the trust during the refinancing process. Because of the cost and complexity of trust, living trusts are not always updated as commonly as they should be when a significant life change occurs.
Conclusion: Which One Is Better?
As you can summarize from the above information, a will and a living trust accomplish similar objectives. On the other hand, trust allows you to cover other objectives that a will cannot. However, don’t all benefits come at a cost? In some instances, having trust and a will is a powerful way to show your love towards your family. So basically, it all comes down to your preferences and situation. When choosing, remember that a one-size-fits-all approach doesn’t always work. What is right for one may not be right for the rest. So evaluate yourself according to the above-said information and choose wisely.