What is The Difference Between a Will and a Trust?
In the process of estate planning, one of the main decisions that you will have to make is between creating a will or a trust. The purposes behind the two documents are similar. In the most basic terms, both of these documents contain the instructions for distributing a deceased person’s assets. It’s important to consider developing at least one of these documents if you do not have one, even if you are in good health, and even if you aren’t married or have any children.
What is a Will?
A will is an essential legal instrument that lets you tell the world whom you want to get your assets when you eventually pass away. If you die and leave a spouse and kids behind, your assets will be split between your surviving spouse and any children. If you’re single and die without a will, then the state will decide how the assets are distributed without taking your wishes or the needs of your family and friends into consideration. Creating and maintaining a will is especially important for people who have young children, as a will is the best way to transfer guardianship of minors in the event of an unexpected tragedy.
What is a Trust?
A trust is a legal mechanism that lets you put conditions on how your assets are distributed after you die, while also often allowing you to minimize any gift and estate taxes. You still need a will, because most trusts will deal only with a specific class of assets such as life insurance or real estate, and they should not be used for the sum total of your possessions. Many people hear or see the word “trust” in estate planning and they may assume that all types are the same, but there are different kinds of trusts for different purposes, and they will perform differently depending on your specific needs.
Revocable Trust vs. Irrevocable Trust
A revocable living trust can be considered a substitute for a will. In a revocable trust, the person who creates the trust, called the grantor, shifts his or her property to a trust. At the time of the grantor’s death, or when the grantor is physically or mentally incapable of managing his own affairs, then the assets held in the trust are dispensed to his or her beneficiaries based upon the instructions provided by the grantor. Revocable trusts are a good choice for those concerned with keeping records private. With a revocable trust, an estate does not need to endure a public probate before beneficiaries will be able to access it. One of the primary advantages of a revocable trust over a will is the amount of flexibility available. As long as the grantor is mentally competent, then they can alter the trust at their own discretion.
An irrevocable trust is a document that is primarily used in estate tax planning. Once an irrevocable trust is established, then you will not be able to change it or remove any assets that have been transferred into it. These assets typically include charitable trusts, life insurance trusts, asset protection trusts, grantor trusts, and qualified personal residence trusts among others.
A testamentary trust is created after you die by a provision in your will. This may also be known as a “trust in a will.” It is commonly used in tax planning or to manage assets for minors or other beneficiaries. Since a testamentary trust is part of a living will, it cannot go into effect until after you die and your will has been probated officially. This type of trust provides no protection or instructions in the event of your incapacity, and any provision you have made for others in your will also cannot go into effect. If you have this type of “trust in a will” and you become incapacitated, then your family will probably have to go through the probate system twice, first for guardianship and then to probate your will after you die.
If I Have a Will, Do I Also Need a Trust?
A trust can still be useful to have even if you already have a will prepared. Whether or not you ultimately decide to create a trust is a personal decision. Young married couples without significant assets and without children, and who intend to leave their assets to each other when the first one of them dies may not necessarily need a trust, but instead, elect to create a will for one another. If the couple should die together in an accident or shortly after each other, and without a will or trust, then their estate and any assets may be subject to probate. Generally speaking, the greater the value of your assets (particularly if you own real estate), then the greater the benefits are for having a trust in the event of an accident or sudden illness.
Still not sure if you should set up a will or trust? Contact Shreveport Estate Planning Lawyer Joseph Greenwald today for all your estate planning needs!