DO I NEED A WILL OR A TRUST? OR BOTH?
People use two primary estate planning documents to plan for the distribution of their assets after death: Wills and Trusts. Both have advantages and disadvantages, so it is important to understand their differences before deciding.
Most people are familiar with the concept of a Will – a legal document outlining how you want your assets to be distributed after you die. If you don’t have a Will, your assets will be distributed according to prevailing law.
Trust, on the other hand, is more complex. A trust is a legal arrangement in which you (the trustor) transfer ownership of your assets to a trustee, who then manages and distributes those assets according to the terms of the trust. Different types of trust can be used for a variety of purposes. For example, a revocable trust can be amended during the grantor’s lifetime, while an irrevocable trust cannot be amended. In addition, trusts can be used for estate planning, asset protection, and charitable giving.
Key Differences Between Wills And Trusts
When it comes to estate planning, many people are unsure whether a Will or a Trust is the best option.
While both options can effectively handle your affairs, there are some key differences to understand before deciding.
1. Effective Date
- A Will goes into effect after you die, whereas a Trust is active once created and funded.
- This means that a Trust can be used to manage assets during your lifetime, which can be helpful if you become incapacitated or otherwise unable to manage your affairs, something a Will cannot do.
2. Probate And Privacy
- When a person dies, their estate must go through probate to confirm the Will and allow the distribution of assets. Probate is a process that a probate court oversees, and it can be lengthy and expensive. If a person dies without a Will, the process is often even more complicated and can take longer and cost more.
- The key feature of a Trust is that it is not subject to probate because they are not considered part of a person’s estate. This means that Trusts avoid the time-consuming court proceedings and costs associated with probate.
- While a Will is typically considered a private document, the reality is that anything that happens in court is available to the public through public records. In addition, as Trusts are not subject to probate, matters can be kept private. This can benefit individuals who want to keep their affairs confidential and out of the public eye.
3. Complexity And Cost
- The cost of preparing a Will is relatively cheap and straightforward.
- Trusts can be complex and require more paperwork to establish, so they are generally more costly to organise upfront than Wills.
- However, avoiding probate can offset the cost of setting up a Trust.
4. Protection From Creditors
- A Will is a legal document that dictates how a person’s assets will be distributed after death. However, if that person has creditors, those creditors may be able to claim against the Will.
- Trusts offer asset protection from creditors. In addition, the trust creator can condition asset allocation to family members during certain events or restrict beneficiaries’ receipt of assets. This means you can control how your assets are used even after you’re gone.
Will or Trust or Both?
When it comes to estate planning, a Will may be all you need – but if you have more complex financial affairs or want to take extra measures to protect your assets, a Trust could be the best solution.
Be sure to consult an experienced lawyer to discuss your best options and devise a plan that will work best for you and your family.