In the wake of the Covid epidemic, very few people took the time to make a will. According to recent statistics, more than 68% of Americans don't have a will, and many don't care enough about estate planning.
Yet, research has shown that more younger adults are more interested in developing wills and estate plans. As you start designing your estate planning, a question may arise, "Will vs. Trust: What's the Difference?"
There are several differences between a will and a trust when it comes to estate planning. Below we'll help you find the answer to will vs. trust and how you can decide which is better for you.
What Is a Will?
A will is a legal document that specifies how to handle your assets upon death. It is mandatory for the person creating a will, called a testator, to be of sound mind and of adult age. When a testator dies, an executor or executrix is appointed to handle estate affairs.
A will or estate distribution can include appointing guardians for children or pets, distributing assets to beneficiaries, and planning funeral arrangements. The law surrounding wills varies greatly from state to state; most require the testator to sign the will along with two witnesses before it is legally binding and enforceable.
What are the options for wills?
Holographic wills, which are handwritten, as well as oral wills, or nuncupative, may also exist—though they may not be recognized by your state as valid. Below are the four types of wills people often use during their estate planning.
1. Simple Will
You decide who will receive your assets and name a guardian for any minor children in a simple will. It is the last legal document to stipulate how to distribute your assets upon your death. If you're leaving property for children, then you should create a simple will as a part of your estate planning.
2. Testamentary Trust Will
Your testamentary trust places certain assets into a trust for your beneficiaries and appoints a trustee to manage it. In the case of minor heirs or beneficiaries, you do not want to handle your assets alone; this can be helpful. For example, one spouse may leave everything to their living spouse, and once they pass on, the assets will go to the children.
3. Joint Will
Two or more people sign their wills separately in a joint will, each containing their own instructions. Joint wills are generally executed by couples so that their spouse inherits nothing.
Joint wills specify terms such as executors, beneficiaries, and any extra instructions the couple may want. The provisions—even after the death of one testator—can not be changed. Because joint wills are inflexible, surviving spouses may not be able to change their wishes.
4. Living Will
A living will does not contain instructions on how to distribute your property after you pass away. However, if you become incapacitated, you get to choose what medical treatments you wish to receive. Also, in a living will, someone may be named to make your decision for you.
When it comes to estate planning, it can be difficult to decide what to include, especially if money is involved. Find out what you need to know about estate planning to make the right choice for your family.
What Is a Trust?
As part of a fiduciary arrangement between a trustee and a beneficiary, a third party holds assets on behalf of the beneficiary. There are many ways in which trusts can be created, and they can specify how and when assets are distributed to beneficiaries.
Generally, trusts are not subject to probate, so your beneficiaries may be able to access these assets more quickly than they might with assets that are transferred by will. Additionally, if the trust is irrevocable, it may not be considered part of your taxable estate so that fewer taxes will be due on your death.
What Are the Different Types of Trusts?
There are different types of trusts you can develop for your estate planning. It'll depend on your situation on which trust is best for you. Below you will find the basic types of trust:
- Marital or "A" trust
- Bypass or "B" trust
- Testamentary trust
- Irrevocable life insurance trust (ILIT)
- Charitable lead trust
- Charitable remainder trust
Trust laws vary considerably among the states and should be considered before making any decisions. If you need help setting up a trust, then book a free consultation with us today.
Will vs. Trust: What's the Difference?
While both wills and trusts can be important estate planning documents, they differ in significant ways. First, trusts become effective when the grantor signs them. Likewise, a will does not become effective until the testator signs it.
Trusts do not have to go through probate upon your death like wills. However, in a will, you can name guardians for any minor children and share information related to funeral arrangements and memorial plans.
Using a trust will simplify transferring an estate after your death and save you the hassle and expense of probate. However, creating a will that names a guardian is essential to protect the children and any inheritance.
It is a personal choice whether to use a will or a trust, and some experts recommend having both. However, the cost of setting up a will is typically less than that of creating a trust, and expensive and often complicated legal document.
It is important to have a will, but it is not necessary to have a living or irrevocable trust for everyone. For example, if you have assets and property to place in a trust and minor children, it might make sense to have both estate planning documents.
Hire a Lawyer to Help You Decide Will vs. Trust
Rather than settling your affairs later in life, it is important to do so early. You can make sure your assets and possessions are distributed according to your wishes with a will or trust, or both.if you need help deciding between will vs. trust, do not hesitate to contact Eric S. Beutel at (859) 653-2856!