Planning for the future is an important task to tackle, yet one that many procrastinate during their lifetimes.
This is reasonable, but putting things off causes more stress and trouble at a time when family life is already hard. Thus, we encourage you to explore the differences between a will and a trust sooner rather than later.
But what is the difference between a will and a trust? And which one do you need for protection?
We’ll answer both of those questions in this article, so read on for more.
Overview of Wills and Trusts
A will and a trust are two distinct legal documents that serve different purposes. A will is a legal document that explains how you want your estate to be distributed after your death. In comparison, a trust is an arrangement used to manage property on behalf of another.
When it comes to wills and trusts, it’s important to understand the key differences between them. With a will, an individual is appointing someone to handle their affairs and make decisions about their property upon death.
With a trust, the details of the Trust will be spelled out regarding how the property and assets will be handled. Usually, a trust has a trustee who is in charge of handling the Ttrust’s assets and choosing who should get the money or property.
Furthermore, trusts are generally used to avoid probate, while a will is part of the probate process. As you can see, wills and trusts are often used together as part of an estate plan.
If a person knows the main differences between a will and a trust, they can better plan for the future. They can also make sure their goals are carried out the way they want.
The Cost Difference
A will and a trust both serve the same purpose: to distribute assets upon the death of the creator. However, the cost to set up each document is vastly different.
Most of the time, a will costs less than a trust because it only takes a few meetings to write, and once it’s signed, it only needs to be filed with the court. A trust, on the other hand, requires more paperwork and legwork and must be registered with the court.
Therefore, the cost of setting up the Trust is higher. Trusts also require a Trustee to manage them, which usually requires either an attorney or an accountant, along with legal fees. This can significantly raise the cost of creating Trust compared to creating a will.
Ultimately, before deciding between a will or Trust, it’s important to consider the cost difference. This is because it can vary depending on each individual’s situation.
Different Types of Trusts
A will and a trust are two of the most commonly used methods of the estate planning process. Both a will and a trust can provide privacy, control, and protection to your assets.
Trusts like living trusts, revocable trusts, irrevocable trusts, and special needs trusts can be used to meet the owner’s goals. Read on to learn more.
Living Trusts
A Living Trust is a type of estate planning document that you create while you’re alive and is available to be used when you’re gone. Unlike a will, a living trust is not submitted to the probate court when you die, so the terms and provisions of the Trust can stay private.
A living trust often divides asset ownership between “trustees,” who manage the Trust. And “beneficiaries,” who receive the Ttrust’s assets when the grantor dies. Living trusts can also be designed to take effect now, such as for asset protection and tax reduction or at the grantor’s transferred death.
A trust document also can provide for the distribution of current income and principal to beneficiaries. It can include directions for how to handle investments in a way that helps the family reach its goals.
A will goes into effect when the person dies and can keep the estate from going through probate. A living trust can offer the same protection and still let the grantor handle his or her assets while the person is still alive.
Revocable Trusts
A revocable trust is an instrument used to pass property to beneficiaries after a person dies. A revocable trust is more flexible than a will, as it can be changed or revoked when the property owner is still alive.
Unlike a will, a revocable trust does not have to pass through the probate court process. This can save time and money. However, revocable trusts do require setting up, managing, and amending, which can be a complex process.
The trust documents should always be reviewed by an estate planning attorney to ensure their validity. Additionally, the property owner must name a trustee to handle the assets of the Trust should they become incapacitated or pass away.
Irrevocable Trusts
An irrevocable trust is a permanent legal agreement that is created to protect an individual’s assets. It also ensures they are distributed according to the settlor’s wishes.
An irrevocable trust transfers the title of the property to the trustee. This makes them responsible for using the assets or funds in it for the benefit of trust beneficiaries.
The trustee then keeps the assets for the reasons outlined in the trust document. When the settlor dies, the assets are given out according to their wishes. It’s important to understand how this document works so that the settlor’s wishes are carried out according to plan.
Dynasty Trusts
A dynasty trust is a unique type of Trust which can provide long-term asset protection for generations. It is most often used for estate planning and asset protection for high-net-worth individuals.
Also, dynasty trusts are often used to include multiple generations of a family in the planning and management of assets. With a dynasty trust, a first-generation grantor can give future families the power to choose the trustees.
Moreover, assets held in a trust are not subject to probate costs, delays, or court scrutiny. Hence, dynasty trusts can be powerful tools for estate planning and asset protection. This allows assets to be passed on to future generations while avoiding the costs and delays associated with probate.
Special Needs Trusts
A Special Needs Trust (SNT) is an important element of estate planning for anyone with special needs or disabilities. Although a Will and a Trust are both legal documents used for estate planning, they have distinct and important distinctions.
When it comes to SNTs, a trust typically offers more benefits, protections, and a more sophisticated level of estate planning. As Wills do not have the same provisions as Trusts to provide for a dependent with special needs.
The beneficiary can get cash and medical help from a trust while still being able to get public benefits. In comparison, a Will does not necessarily include these benefits. Ultimately, an expert estate planning lawyer can help determine the proper vehicle for establishing an SNT.
Special Consderations
Special considerations when it comes to wills and trusts are numerous and often complex. Some of these include taxes, the impact of probate on beneficiaries, and the ability to disinherit someone.
For example, estate taxes on assets can be higher depending on how the money is distributed. Also, probate can be pricey and time-consuming, and if assets pass directly to heirs via a will, they may go through this process. Lastly, trusts can let you disinherit someone, while wills cannot.
All of these considerations can help the individual decide the best way to distribute their assets after death. There are a lot more things to think about, and an experienced lawyer can help you understand how important and big they are.
After taking special things into account, a person can be sure that they have made the right choice about their Will or Trust.
The Level of Protection
A Will and a Trust offer different levels of protection from creditors, lawsuits, and other risks. A Will has a limited ability to protect assets from creditors because, upon death, probate proceedings take effect. This can provide some degree of creditor protection as assets are transferred according to the Will.
On the other hand, a Trust can provide more extensive and sophisticated protection from creditors. Assets are placed in the Trust. This grants the Trustee the authority to manage and distribute the assets in a way that will protect the beneficiary’s assets. This includes being able to set up different trust accounts that are only for certain people or organizations.
When an asset is placed in a Trust, it is shielded from creditors and can even reduce the potential of being taxed at a higher rate upon death. Thus, the level of protection offered by a Trust is greater than that of a Will.
Explore and Discover the Difference Between a Will and a Trust
A will offers a straightforward asset transfer process tailored to your individual needs. A trust provides more control and often more flexibility in asset management and asset transfer.
If you’re unsure which option is right for you and your family, you should contact an experienced estate planning attorney to discuss the difference between a Will and a Trust and the benefit of both.
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