Estate planning is something that most people avoid at all costs. In the back of our minds, we know that we’ll perish one day, but no one wants to talk about that day or plan for it. We especially don’t like to think what will happen if we get incapacitated!
However, if you have beloved family members and assets, it is essential that you not only think about who will get what when you make your transition, but also who may need to take care of you if you can’t take care of yourself. Thankfully, putting the proper legal documents in place can ensure that your wishes are carried out.
Will vs. Trust: What Does Each Do?
In United States, individuals can create a will or a living trust.
Will
A will is a legal document that clearly expresses your wishes as to how your property and assets should be distributed to your stated beneficiaries when you die.
Living Trust
A trust, on the other hand, is a legal entity that is created by the original owner or settlor, which places assets into the trust for the trustees or beneficiaries to inherit when the settlor passes. Assets can also be distributed during the life of the settlor. There are two types of trusts: revocable and irrevocable. A revocable trust can be changed or revoked at will, and an irrevocable living trust cannot be changed once it has been created.
You can Avoid Probate with a Trust
One main difference between a will and a trust is that a will requires that the beneficiaries go through a court-supervised probate proceeding to gain access to assets when someone passes away. In contrast, a living trust passes to designated beneficiaries without a formal court proceeding. To further explain, a living trust enables the settlor to put (or retitle) assets, like bank accounts and retirement accounts, into the trust. It also allows those same assets to be used during the settlor’s lifetime, if they’re ever incapacitated. Then, the trust transfers the remainder of the assets of their loved ones or beneficiaries when they pass. In contrast, assets don’t have to be transferred into a will (only a trust). Additionally, if you become incapacitated, a trust enables an appointed person, your independent executor, to manage your care with your trust assets. When assets are added into a trust, they will only be distributed in the manner you stipulate. However, with a will, the assets are part of the probate proceedings.
Trusts Offer Privacy
Another difference between a will and a trust is that with a will, the court takes an inventory of the estate and that inventory is made public. On the other hand, a trust is private and cannot be publicly viewed. Wills can be defeated; however, it is harder to do so with a trust. For instance, let’s say you listed your sister as the beneficiary on your life insurance and retirement policies, but you want your mom to have those funds. Well, with a will, the funds will automatically pass to your sister who is your stated beneficiary, despite provisions in your will, designating your mom. However, with a living trust, the trust becomes the primary document and will enable the funds to pass to your mom as stated in your trust.
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