You have probably heard of wills and trusts in terms of estate planning but do you know the difference? Although the two serve different purposes, they can easily be confused. Here is a simple breakdown of the differences between a will and a trust.
What is a will?
A will is an estate plan that goes into effect after you die. In your will, you can direct a person (or persons) as your legal representative(s) to carry out your wishes and designate who will receive your property and assets upon your death. A will does not cover any property that is held in a trust or joint tenancy, but only property that is held in your name. A will must pass through probate. In other words, a court will oversee the administration of your will and ensure that it is carried out the way you wanted. As such, a will becomes public record.
For more on wills, read this blog: Top 4 Reasons Everyone Should Have a Will
What is a trust?
Unlike a will, a trust goes into effect as soon as you create it. It is a legal arrangement in which you designate an individual or an institution (such as a bank or law firm) as your “trustee” to hold the title to your property. You can also designate a beneficiary or beneficiaries to receive what is left of your estate after you die. A trust will only cover property that has been transferred to the trustee. Any property you wish to be included in your trust must be put in the name of the trust. A trust does not pass through probate, which can save both time and money. Because a trust is not probated, it can remain private.
Do I need a will or a trust?
Both wills and trusts can be beneficial. In a will, you can also specify funeral arrangements and name a guardian for your children. A trust can save you money on taxes and help you plan for disability.
An experienced will and trust attorney can help you determine if you need to set up a will or a trust to handle your estate and guide you through the process. An attorney will explain the legal terms and help ensure that your will or trust is set properly so there are no questions in the event of your death. Your attorney can also help review your financial assets and double check who can receive what from your retirement accounts.
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