Are you getting ready to do some estate planning? It can feel like a complicated endeavor, but if you start with the basics, you’ll be in good shape. What is the difference between a will and a trust?
What Is the Difference Between a Will and a Trust?
Whether you’re thinking about your legacy or want to ensure your loved ones are cared for in the future, estate planning is essential for all seniors. If you don’t know what you’re doing, it’s easy to get overwhelmed by legal terminology and complicated processes. However, once you understand the basics, you’ll be surprised at how simple it becomes. For example, what is the difference between a will and a trust?
How Does a Will Work?
Most of us are familiar with the idea of a will, but we may not understand how it works. In simple terms, a will is a legal document that provides instructions for the executors of your estate after your death. A will allows you to make plans for your assets and ensure other legal obligations are taken care of upon your passing:
- A will can guide the distribution of your assets, such as property and savings accounts.
- A will can allow you to resolve legal matters that might arise after your passing, such as determining who is responsible for managing your estate.
- A will can provide your loved ones with instructions on burial arrangements and other ways your memory will be honored.
The contents of a person’s will largely depend on their assets and legal situation. No matter what details the will contains, it must be signed and witnessed according to applicable state laws. Working with a lawyer and financial advisor when preparing a will is a good idea.
How Is a Trust Different?
In many ways, trusts and wills are very similar. Both legally binding documents govern how a person’s assets are distributed to others. However, there are several key differences between a trust and a will that seniors should be aware of:
- While a will is often a more general document, a trust focuses on assets. A trust allows you to select a trustee responsible for managing and distributing said assets, typically to heirs and other beneficiaries.
- Unlike a will, a trust can be executed before a person dies. There are also different types of trusts for different asset management situations, such as charitable trusts.
- Trusts have significant tax benefits and financial management benefits that wills do not. Speaking to a tax lawyer before establishing a trust is essential to ensure it’s the best option for you.
What Happens If I Don’t Have a Will or a Trust?
Sometimes people think that if they don’t have much in the way of assets, they don’t need a will or a trust. However, no matter how good you are at downsizing, you’ll likely have some things you want to pass on to your heirs. If you don’t have a will or trust, your assets will be considered intestate, and your state probate court will take over. This can result in considerable delays, frustration, and expense for your loved ones, and your final wishes may not be followed.
What is the difference between a will and a trust? Talk to a lawyer or estate planner today to better understand these financial tools and decide which one is right for you.
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