Estate planning is an important part of life. If you have a plan in place, you can ensure that your assets will go where you want them to, there will be less of a chance of dispute amongst your loved ones, and you’ll receive the care you need if you get sick.
There are different documents involved, and you may not know the difference between each one. Let’s take a look at the definitions of a will and trust, and what makes them unique.
What Is a Will?
A will is a document you can use to stipulate who will receive your assets when you pass away. It also includes information on who you want to look after your minor children should you die as well as what you want for your funeral. Usually, it is called a testamentary will. With a will, you could ensure that your estate saves money on taxes. It’s best to get an estate planning attorney to help you write your will so that it’s completely legal. If you do it on your own, you could get some information wrong and your heirs will be left scrambling to figure out what course of action to take.
What Is a Trust?
A trust is a document that allows you to transfer your estate to a party authority to oversee your assets for a third party, your beneficiaries. You could create a living trust, which is revocable, because you can change it while you’re alive. As long as you’re alive, you will have ownership over the property in the trust. When you die, your property can immediately go to your beneficiaries.
The Difference Between a Will and a Trust
If you only have a will, your loved ones could have to go through probate, which is a lengthy, time-consuming, and costly court process to make sure that your will is carried out. The probate process is public, which means that anyone can access your will.
You could potentially avoid probate with just a will if you have a small estate; the cutoff to qualify for avoiding probate depends on your state’s laws. On the other hand, a revocable living trust does not need to go through the court system, so it will be private.
A will can be challenged in a court of law, but usually, a trust cannot be. A trust becomes active when you sign it, while a will does not.
Keep in mind that since these are two separate documents, one will not usually override the other. However, if a problem does arise, the living trust will typically override a will.
What Happens if You Don’t Have a Will or a Trust?
If you die without a will or a trust, then the state can come in and determine what will happen to your assets like your bank accounts, properties, assets, and securities. If you have minor children, the state will handle their guardianship as well. Your family could be in court for several months and spend thousands of dollars on legal fees to sort out the situation.
This is why it’s critical to create a will and/or a trust as soon as possible, even if you aren’t a senior citizen. It’s especially important to do this if you have children. Otherwise, your loved one’s lives could become very difficult once you pass away, and your wishes may not be fulfilled.
You should update your will and trust any time there has been a major change in your life. For instance, if you get remarried, you’ll likely want to make sure that your assets go to your children from your first marriage as opposed to your stepchildren. You may also want to remove your ex-spouse from your documents so that they aren’t a beneficiary anymore.
Reviewing your documents periodically, even if you haven’t experienced major life changes, is always a good idea just to make sure everything is correct.
How to Choose Your Heirs and Beneficiaries
Many people will name their spouse and/or children as their heirs and beneficiaries. If your children are under 18 years of age, then they may not be able to gain control of the assets until they turn 18. You could create a trust for them so that they can receive their distributions.
Additionally, you can leave money to a beloved pet so that they will be cared for after you’re gone. You can even stipulate that your money should be donated to a charity or given to a business when you die. It’s up to you.
If you have not set up a will or a trust yet, consult with an estate planning attorney in your local area. An experienced attorney can guide you on what the best move is for you and your loved ones as you plan for the future.