Most people own an estate, which includes all the possessions of an individual, such as a home, car, savings accounts, furniture, life insurance policies, investments, cryptocurrencies, and any personal belongings.
No one can take this estate to their graves. So, it’s essential to do some estate planning while you still can. That ensures that your loved ones will be taken care of when you pass on.
What is estate planning?
Estate planning primarily involves deciding who will receive your assets and possessions after your death. This type of planning confuses many people. After addressing all the legal complications, you have to assess two primary aspects of estate planning:
- Who will be legally entitled to your assets after your death?
- Who will be responsible for caring for you after you become incapacitated?
In this article, I’ll resolve the first part of the equation.
What options do you have?
While determining the ownership of your possessions, there are usually two options worth considering:
- Create a last will.
- Create a living trust.
So what happens to one’s belongings after they die? Perhaps, the individual wanted their family members to own everything. But this is not always the case.
Sometimes there is bad blood between family members (not in your family though, right!?). This prompts a person to ensure their relatives, who are not on good terms with them, don’t get to enjoy the perks of their estate after they die.
Why are so many people without a trust or will?
There is a reason. Not that trusts or wills put people at a disadvantage, but it’s hard for most of us to get our head around wills and trusts because these documents are complicated and intricate. A lot of legal terms make them sound confusing.
And the legal consultation fee for trusts and wills can be equally perplexing. Some place blame on attorneys that fail to highlight the differences and pros and cons between trusts and wills.
This is why I’ve made use of my experience and created this easy-to-understand guide to help you learn about these documents. I’ve shed light on some of the most common questions, including:
- How are these documents similar?
- What makes them different from each other?
- Which one of them should you go for?
What is common between a will and a trust?
Both wills and trusts fall into a category known as revocable. In layman’s terms, this says that after creating a will or trust, you can modify or cancel any conditions on the document.
This leads me to a critical point:
This revocable living trust vs. will factor can be only applied until you are competent. Meaning, if you contract something like Alzheimer’s that inhibits your ability to think clearly, you can’t make any changes to your trust or will.
In both of these documents, you can mention the name of a representative tasked to handle the supervision and transfer of your assets when you die.
In a will, this representative is called an executor, administrator, or personal representative. This person is entrusted with controlling the distribution and probate processes.
But you have a successor trustee in a trust. This role is similar to that of an executor. The difference is there is no probate factor here.
For those with minor children, you have to name those who can provide for them after your death.
Wills and trusts assist parents in assigning a guardian for minor children. A guardian can look after the care of your children until they reach the age of 18. Similarly, you can also name a conservator – an individual who can manage your assets until your children become adults.
A few more attributes make wills and trust similar, but the ones mentioned above are the major ones. Now let’s determine what makes a will and trust different from one another.
Living trust vs. wills- The difference between a will and a living trust
The terms and conditions of a will only apply in the event of your death, whereas a living trust is enforceable during your lifetime and are revocable or irrevocable.
You may very well be wanting clarification about irrevocable vs revocable living trusts. In a nutshell, irrevocable living trusts can never be changed by the grantor after the trust has been formed whereas a revocable living trust can be changed at any time.
Is it really a good idea to hand $500,000 to a child who has just turned 18? Not that your child is immature, but still, handling them your entire estate can be a recipe for disaster.
A trust can ensure you have a trustworthy individual to oversee your estate’s distribution to your heirs. With a will, you won’t be around to ensure your estate is passed on to your dependents.
Should I go for a will?
It depends on your current standard of living. If you have no assets to your name, a will is not suitable for you.
Some people have a philosophy where they give no heed to the matters that occur after their death. Therefore, if you don’t care about who gets your possessions or how are they’re distributed, don’t create a will.
However, if you have a specific plan in mind as to who should receive your assets, you should probably go for a will. It is a convenient and cost-effective solution.
What are the pros of having a will?
- Wills are usually more affordable than trusts. Sometimes, you can even have one made for free. However, you would still need a reliable and smart lawyer who can manage it.
- A will is preferred for those individuals that don’t have a complex set of assets. Similarly, it’s suitable for those people who want to ensure that their highly-valued possessions make their way effortlessly to their heirs.
- In some U.S. states, probate does not cost much. Often, probate prevents people from establishing wills because many cunning probate lawyers can drain their clients’ assets to a considerable extent. With probate out of the equation, there aren’t many negatives against wills.
- Wills cover the complete estate and assist in controlling an estate’s probate. But a trust only includes the assets specified in them.
- Wills help to split up life insurance if the beneficiaries listed on the policy die before you.
- If you have a retirement account, a checking account, a savings account, or any other payable-on-death account, the proceeds add up to your estate whereas a will can probate them.
What are the cons of having a will?
- Despite the affordability of wills, they are a time-consuming affair. Sometimes, beneficiaries were forced to wait for several years before the probate was managed efficiently, and even then, they had to face further disappointments.
- In some states, your attorney receives a portion from your estate value; thus, it adds up to the probate expenses.
- Remember that probate becomes a part of the public record.
Should I go for a trust?
Getting both a will and a trust are not mutually exclusive. A trust is taken as a separate legal entity that specifies the conditions of how your assets would be distributed to your beneficiaries.
So, some people add their funds and property in a trust helped by a will for establishing a new trust that can comprise of the new assets. This estate planning is known as a testamentary trust.
What are the pros of having a trust?
- Trusts are one of the most effective solutions to distribute assets of a large estate. This is because a trust calls the shots and enforces the terms (rather than a court or a probate lawyer doing it). In this way, you can also save your assets from any liability-related claim.
- Thankfully, you don’t have to fear the probate dilemma with trusts; they don’t go through it. This means that the rules of a trust are binding. Sometimes, a court can interpret the rules of the trust differently than you envisioned. However, the fact remains you’re mostly in control of how you want to enforce the conditions of your trust. Since there is no hurdle of probate, you can ensure the distribution of your assets is accelerated.
- With a trust, you can prevent your heirs from paying any estate taxes as the trust’s assets are legally tied to the trust, rather than the estate.
- Trusts prioritize the preferences of the grantor – an individual who uses his or her assets to establish trust. In the case of a will, dishonest relatives can cheat and intercept the distribution of the assets. However, with trusts, the responsibility is assigned to a trust until the eligibility of the assets is invoked (i.e., an individual becomes eligible to take them).
What are the cons of having a trust?
- It’s costly to create and maintain a trust. You may have to pay several thousands of dollars to build a trust only and then pay a lot more for its maintenance.
- Although trusts are used to enforce your wishes, they can be challenged legally. For instance, if you accidentally specify two beneficiaries for the same asset, then the court must decide who ends up with that asset. Similarly, legal consequences can occur with life insurance death benefits and other payable-on-death accounts.
- A trust can only enforce terms for those assets specified in it. This means that if any of your assets are not mentioned, you will gain control of that asset. If you have not created a will, your non-trust assets can be subjected to probate.
How can you get a trust or will?
It depends upon your requirements, health, children, privacy, and preferences on whether you should choose a trust or a will. And of course you’ll want to consider the cost of a living trust vs will.
To establish and maintain trusts and wills, I understand fully that you really need a reliable provider – one that boasts a strong and positive reputation in estate planning.
That’s why I strongly recommend Trust & Will. These guys can make your will in less than 15 minutes. Their wills start at just $69. If you want one for your spouse too, you can pay an additional $60.
If a trust is what you want, you can have one create for only $399. If you have minor children and want a guardian or conservator to look after your kids or manage their assets, then you can nominate them at only $39.
As you can see, the difference between trusts and wills can quickly become complicated. It’s always smart to have baseline knowledge, but I strongly encourage you to work with a lawyer or a reputable company like Trust and Will to have these documents drawn up for you.