How do you know if you need a trust or a will?
If you’re estate planning, you may be familiar with a will and a trust. These are legal tools to help you manage your assets after you’ve passed away. Many estate plans have one or more trusts, along with a will.
However, many still do not know the difference between a will vs. trust. Some may avoid planning for a trust if they’re not well off. When estate planning, it’s essential to consider your options.
Are you choosing between trust vs. will? This article covers what you need to know about trusts and wills before you decide. Read on to discover more!
What is a Trust?
Like any trust fund, a living fund will entail how to distribute your assets after you pass away. You can place almost anything in a living trust, as long as it has value. This can range from your real estate, vehicles, and banks and savings accounts.
You may also include any fine art or jewelry that belongs to you. Trusts can also cover virtual items like intellectual property. When a grantor forms a living trust, they transfer ownership to the trust itself.
The grantor can appoint a trustee to carry out the provisions in the trust contract. You may appoint a relative or see an estate planning attorney for this.
The grantor may then leave a full inheritance to their beneficiaries. You may even place certain conditions before a beneficiary can receive their inheritance.
Types of Living Trusts
A living trust has two forms. Your choice depends on how you want to handle your assets. Here’s a quick guide between irrevocable and revocable trusts.
Revocable Trust
This is the most common form of a living trust. Most people refer to it as a living revocable trust or a living trust. If you choose this type of trust, you, as the grantor, may cancel it at any time.
Revocable trusts are perfect if you want to remain flexible and keep your options open. Revoking a living trust is not fast, but it’s possible if you do it right.
Irrevocable Trust
An irrevocable trust is an active trust that not even the grantor can change. If you want to make changes to an irrevocable trust, you may need to consult a judge. You will need special circumstances to qualify for changes.
Some people start with a revocable trust. Then, they convert to an irrevocable trust after they’ve finalized some factors. When a grantor passes away, a revocable trust auto-converts into an irrevocable one.
Pros
Getting a living trust allows you to save money and time during the probate process. You can name a trustee to manage your affairs after you pass away. They will not need to wait for a probate judge, allowing you to save more money.
Trusts are less likely to get challenged in courts than wills. It’s harder to prove that a grantor signed the documents against their own free will.
A living trust also offers more privacy than a will. No one will know the details about a trust unless a trustee or the grantor shares that information. When choosing between a living will vs living trust, a trust can provide more security.
Cons
When you set up a living trust, none of your assets belong to you. Setting up a living trust means that you transfer ownership of your property to the trust. If you want to sell property under your trust, you will need to contact your trustee.
Trusts can be costly to set up since you need to consult an attorney. You may need to pay additional fees if you want to change your trust. You also need to go to retitle and re-deed your property to make it reach its full potential.
What is a Will?
A will entails your wishes regarding the distribution of your assets. It may also cover the care of your children after your death. If you die without a will, there’s no guarantee that your wishes will get fulfilled.
Types of Wills
Wills, depending on their type, can vary in effectiveness. There’s no one will that will resolve every issue after your death, so it’s essential to choose the right one. Here are the different types of wills.
Joints Wills
Joint wills are more common among married couples. Two people can create a joint will to entrust their assets to each other. The couple may agree that when one dies, the other can inherit the entire estate.
They may also appoint someone to take care of their assets once the surviving spouse dies. A mutual will can do the same thing. The only difference is, a joint will is a single document while a mutual will is two.
Holographic Will
A holographic will is a document signed by hand, involving both a last will and last testament. People in life-threatening situations may issue a holographic will. An example of this can be a soldier in the field.
Nuncupative Will
A nuncupative will is similar to a holographic will. It involved a last will and testament.
However, this type of will get spoken out loud instead of written by hand. The rules of a nuncupative will may vary depending on the state you live in.
Deathbed Will
A testator may create a deathbed will while they’re facing certain death. You can write it by hand or type it out, then sign in the presence of a witness.
Pros
Wills are generally cheaper to create and set up than trusts. If you own a smaller estate, the cost of setting up a trust may exceed the probate. A will also require court supervision when distributing your assets.
Cons
For some, the probate process can be a big disadvantage. This can cost more time and money than trusts. Wills are also public documents, meaning you don’t get as much privacy as with trusts.
What You Should Know About Will vs. Trust
Wondering the difference between will vs. trust? Now you know! Depending on your needs and the size of your estate, one may be more beneficial than the other.
Thank you for reading our article! Looking for more tips on managing your assets? Check out our other guides for more!