With all the legal terminology and paperwork involved, estate planning can be a confusing process. For example, should you set up a living trust or make a will? Which arrangement would best serve your interests? Do you know how to distinguish one from the other? Understanding the difference between wills and trusts will impact how your assets are handled after you die – and, in some cases, while you’re still alive.
The Difference Between Wills and Trusts
Wills and trusts are both used to dictate the division of a person’s assets after death. Each legal arrangement features benefits and drawbacks, so your choice will depend on the details of your personal situation. To ensure that you make the right decision, discuss your goals and the difference between wills and trusts with an attorney experienced in estate planning.
Wills Explained
A will describes how you wish your property and other interests to be distributed upon your death, and the document goes into effect only after you die. Detailing your wishes in this way will prevent your state’s legal system from taking over the process and ensure that your beneficiaries receive the assets to which they’re entitled. In addition to dispersing assets, wills can contain further information and instructions. For example, they can assign guardians for minor children and provide details for funeral arrangements. Typically, a probate court must validate a will and ensure that the instructions within are carried out properly. Unfortunately, probate can be stressful, costly, and time consuming. You can revoke or amend a will at any point during your lifetime.
Work with knowledgeable legal counsel to write up your will and ensure it includes the proper provisions. The final document must be signed, dated, and witnessed by a certain number of people as detailed in the laws of your state.
Understanding Living Trusts
A living trust (also known as a revocable trust) is established and goes into effect while you are still alive. Because the trust is revocable, you can make changes to the provisions during your lifetime. Although you place assets into the trust at the time of its creation, as the trustee, you can retain ownership of these assets until you pass away. You can also use a living trust to prevent your financial matters from becoming public record, and you can provide instructions within it detailing what you would like to happen if you were to become incapacitated. Finally, trusts provide more control than wills. For example, you could decide that a beneficiary may only receive his or her inheritance after graduating from college or ten years after your death.
Unlike wills, trusts are not subject to probate court, and they cannot be used to appoint guardians for minor children. However, they can be used if an unforeseen event occurs, such as a disability or illness, as the successor trustee will step up and manage the trust’s assets. As trusts are often more expensive than wills, be sure that you understand the process before choosing to use one to manage your assets.
Tips for Estate Planning as a Senior
It’s easy to push aside thoughts of wills and trusts when you’re young, but once you reach your senior years, you have less time for preparation and planning. Whether you choose to use a will or a trust, be sure to leave clear instructions so that the distribution of your assets proceeds smoothly after your death. The more you have in place, the easier it will be for your family after your death. Thus, we encourage you to gather a good team of advisors (including an attorney and perhaps a financial planner or accountant) to help you set up a will or trust as you see fit.
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Understanding the difference between wills and trusts is critical in the preparation of an estate plan. Don’t wait to get your affairs in order – you have no time to waste! To ensure that your beneficiaries receive exactly what you wish to give them, contact a reliable attorney today.
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