Wills and Trusts: Know the Difference
The first step to deciding what will happen with your assets at the end of your life is figuring out whether you need a trust or a will. Both trusts and wills are legal documents that name a beneficiary for your property. While they seem to function similarly, each has its own advantages and disadvantages. Therefore, it is important to know the difference, so you can decide which is right for you. Without either of these documents, your assets will be considered intestate, and the courts will decide who should inherit your property.
How Does a Will Function?
A will, also known as a Last Will and Testament, names an executor of your estate. The executor then oversees the distribution of the deceased’s assets and pays any debts or taxes that the deceased owns. However, the executor does not immediately take control of the assets; he or she must submit the will to probate court. Among other things, the probate judge will determine the validity of the will, notify creditors, and oversee the distribution of the assets. This process typically takes anywhere from several months up to a year and should be handled by a qualified attorney.
Advantages and Disadvantages of a Will
One advantage of a will is that it is a relatively simple document to create in comparison to a trust. With a will, you can also revise the document easily; it does not require that you transfer any property while you are living. A will can name guardians for minor children and property managers if those children inherit property.
There are some drawbacks to a will. A will must go through probate which can be a lengthy and costly process. If you have a loved one who is dependant on you and your estate, they may not be able to support themselves until the probate process is complete. Also, the probate process becomes public record because it is held in court. Therefore, privacy might be a concern for you since anyone can find out the type and value of the assets that you held. A will only functions at the time of death, so it does not address what happens if you become incapacitated due to illness.
How Does a Trust Function?
A trust is a legal contract that names one or more trustees to hold the property for one or more beneficiaries. There are two types of trusts typically used for end-of-life matters: Revocable and Irrevocable. The trustee, or grantor, allocates assets into the trust. These assets remain in the grantor’s control until death, and at that time, they immediately transfer to the beneficiary. You can also create an incentive trust which carries with it a set of conditions that must be met before the beneficiary takes control of the assets. For example, an incentive trust can set an age-restriction or encourage continuing education.
Advantages and Disadvantages of a Trust
One of the primary advantages of a trust is that it avoids the probate process. Those who create a trust prefer this because it is easy for their loved ones to take control of the assets. Avoiding probate also eliminates the costs associated with probate court and keeps the assets remain private. If you have a business, a trust can ensure an easy transfer of control of the business. While it is possible to contest a trust, it is much harder to do than a will.
However, trusts are not as easy to set-up as a will. All of the assets that you wish to transfer must be placed within the trust. Anything that is not “funded” in the trust will not pass to the beneficiary. Anything left outside of the trust will require a pour-over will, and the pour-over will becomes subject to the probate court. Although a trust avoids probate, administering a trust still takes time and effort, and you may need to contact a professional for assistance.
Contact Seigel Law Group for Your Estate Planning
At Seigel Law Group, we consider estate planning a type of counseling. We want to listen to your goals, hopes, and dreams to make sure that you and your loved ones are taken care of when the time comes. Call us at (855) 352-3782 for a no-cost, no-obligation consultation.