If you’re looking into estate planning, chances are you’ve come across the terms “Will” and “Trust. Let’s take a closer look at the differences between a Will and a Trust and determine whether you need one or both.
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Will vs. Trust
A Will is a legal document that describes how you wish your assets (property, money, and possessions) to be distributed after your death.
On the other hand, a Trust is a legal arrangement where an individual (called a trustee) holds and manages assets on behalf of someone else (called a beneficiary).
Here are three differences you should know:
Effective Date
The most prominent difference between a Will and a Trust is the timing of effect. A Will becomes effective after your death. This means your assets can’t be distributed until a court validates them during probate. Remember that you can change your Will anytime during your life.
A Trust is the exact opposite. It becomes active as soon as it is created and funded. In simple terms, you can manage and distribute your assets when you’re alive. After your death, a trustee of your choice can continue to handle your tasks.
Probate Process
A Will must go through probate, a legal proceeding during which the court reviews the document, confirms its validity, and oversees the distribution of assets. Unfortunately, getting everything straightened out at the probate court is difficult. Moreover, the process is public, which means that anyone can contest the Will, further complicating things.
By setting up a Trust, you can avoid probate altogether. As long as the assets are transferred to the trustee’s account, you’re good to go. This is why estate planning and trusts go hand in hand.
Control Over Asset Distribution
Wills offer little control over asset distribution. This is because a Will gives one-time instructions–your estate is distributed after you die, no ifs and no buts.
This isn’t the case with Trusts. For example, many people restrict beneficiaries from unlocking their assets until they’ve reached a specific milestone, such as finishing college. Here, you can avail the services of a reputable wealth management service provider like Creative Planning. They’ll take care of the entire situation, ensuring peace of mind.
Will vs. Trust: Which Is Better
As hinted earlier, Wills and Trusts have different benefits, which is why it’s not justified to assume that one is better than the other. Assess your financial goals and needs at the very beginning. Choose the one that best suits your family and supports their financial security.
Do You Need Both?
The answer is yes! Since Wills and Trusts serve different purposes, you can utilize both to ensure robust wealth management.
By creating a Trust, you can distribute your assets without going through the exhausting process of probate. But it doesn’t cover everything. For instance, you can’t name a guardian for your minor children in a trust. A Will can help you here. You can also choose a special Will called a Pour Over Will that works in conjunction with your Trust.
The bottom line is that using both a Will and a Trust can help you cover all bases.
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