When we think of the protection and preservation of our family and belongings, we think of estate planning and while thinking about it, the two terms that are frequently used are a will and a trust. Irrespective of your wealth and age, you need to be assured that your estate is planned according to your wishes and thus estate planning is a must for you. You can use both a will and a trust which have different purposes to plan your estate.
An estate plan can have both a will and one or more trusts included, however, either of them can be more important as compared to the other. Your circumstances decide the correct action plan as for some people a trust is quite useful while for others, it may be expensive and time-wasting. As both are used to manage and disposing of your assets, but it is very confusing for the people to choose which one to prefer. We have explained the two in this article for your convenience.
A will is a legal signed and witnessed paperwork that specifies the dispensing of your assets after your demise. The person who creates the will is known as a testator, and he/she appoints an executor to look after the transfer of a testator’s estate to his/her legal heir. It also allows the testator to appoint a guardian for the minor children.
It can be revoked and alternated any time while the testator is alive. If a person has created multiple wills for the distribution of his/her assets, then his/her ‘ the latest will’ will be executed. If a person dies without creating a will, then his property is distributed to his legal heirs such as children, spouse, father, mother, etc., as per the law of inheritance.
Contrarily, trust is defined as a legal arrangement that enables a person or institution like a bank, etc. referred to as a trustee, to hold the legal title of the assets of the assigned beneficiaries. It allows a person to nominate beneficiaries of his assets, before or after he passes away. The document which specifies the terms of the trust are known as the trust deed and the subject matter is known as trust property.
Difference between a Will and a Trust-
Usually, there are two types of trust’s beneficiaries i.e. one who gets funds from the trust during their lives and second who receives the remaining assets after the granter’s death. The trust also can be of two types viz. revocable trust which can be amended or terminated whenever required during the life of the trust granter while an irrevocable trust is the one that can neither be amended nor cancelled once it becomes effective. A successor trustee is nominated by the granter who handles the trust and distribution, after the granter’s death.
Below mentioned are the differences between the two:
1. When they come into force: The last will takes effect after the demise of the testator while a trust becomes effective as soon as it is signed.
2. Distribution of assets: Your property is distributed to your heirs through a will by appointing an executor to carry out your desires.
On the contrary, with the help of trust, you can start the dispensing of the assets during your life, at your demise and afterward.
3. Property covered: A will undertakes the property that is owned by you solely when you die, which means that the property which is owned jointly or in a trust is not covered under a will.
Trust undertakes the assets which have been put under the trust and hence you must ensure that if you want to include a property in the trust then it is mandatory to transfer it in the name of the trust.
4. The requirement of probate: Property entitled to be transferred through a will has to pass through probate which is a time and money-wasting procedure.
On the contrary, the trust avoids probate and hence, a court is not involved to supervise the procedure, which saves time and money.
5. Privacy protection: As the court proceeding is involved in the case of a Will, hence your property comes into the public record and your privacy is hindered. Unlike a will, a trust operates without the interference of court and public and thus, it remains private.
6. Trust provides for life and death: A will does not plan for mental incompetency as it comes into being after your death. If in case you become incapacitated, your family will have to go to the state court for getting the authority to manage your financial and healthcare decisions which can be burdensome and expensive.
In case of a revocable living trust, you can mention the provision for incapacity and the successor trustee will be authorized to take over when you become incapacitated and handle your financial and medical affairs. Here, the person so authorized will be of your choice unlike in the case of a will, where the court will decide for you.
A trust and a will, both are effective tools required for estate planning. Your circumstances and value of assets might be different and therefore, it is advised to consult your estate planning lawyer to help you in making the correct decision to use a will and a trust in your estate plan.