Unless you deal with them on a day to day basis, you may not be aware of the differences between a will and a trust and which may be the most beneficial to you, your family, and your needs.
A main difference between a will and a trust goes into effect as soon as you create it while a will takes effect after you pass away. While a will directs who will receive your property after you die, a trust can distribute property before death, at death, or even afterwards.
A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a "trustee," holds legal title to property for another person, called a "beneficiary." A trust usually has two types of beneficiaries -- one set that receives income from the trust during their lives and another set that receives whatever is left over after the first set of beneficiaries dies.
A will covers property only in your name when you die, it doesn’t cover property held jointly. A trust, however, only covers property transferred to that trust.
A will also passes through probate, which means that a court oversees the administration of the will and ensures the will is valid. A trust passes outside of probate, so a court does not need to oversee the process, which can save time and money.
Another difference between a will and a trust is that a will passes through probate. That means a court oversees the administration of the will and ensures the will is valid and the property gets distributed the way the deceased wanted. A trust passes outside of probate, so a court does not need to oversee the process, which can save time and money. Unlike a will, which becomes part of the public record, a trust can remain private.
Here are some characteristics of a trust and will:
Name beneficiaries for property
Leave property to young children
Revise your document
Keep privacy after death
Require a notary public
Requires transfer of property
Protection from court challenges
Name beneficiaries for property
Revise your document
Name guardians for children
Name property managers for children’s property
Name an executor
Instruct how taxes and debts should be paid
Simple to make
Name Beneficiaries for property
Both a Trust and a Will allow you to name beneficiaries for property. In a will, you do two simple things, you describe the property and list who should get it. When using a trust, you must describe the property, list who should get it and Transfer the property into the trust. In order to do this it can be as simple as making a list of the property, however items with titles, such as real estate, must be retitled so that the owner of the property is the trust. This is not difficult, just an extra step to take.
Leave Property to Young Children
Children under the age of 18 cannot legally own property. When you leave property to young children, the property must be managed by an adult until the child turns 18. You can leave property to young children using a trust, the trustee manages the property until the child reaches an age determined by you. When you using a will, you need to make sure assign an adult to manage the property. If you do not name someone to manage the property the court will name someone after your death.
Name Guardians for Children
Only in a will can you name guardians for children and property managers for children’s property. You also can, name an executor. This is the person in charge of wrapping up your estate after you die. Their duties include:
In a living trust, a “successor trustee,” manages property left through a trust. Most estates need an executor so it is advised to name both the executor and successor trustee as the same person.
Probate is when the court wraps up a person’s affairs after their debts. This process is time consuming and expensive. By utilizing a trust, you can avoid probate and your property’s can be distributed to the beneficiaries after a death without court interference and fees.
In order to “avoid conservatorship,” it is important to name a spouse, partner, child, or other trusted person to have authority over trust property when you become incapacitated. When using a will you can only make a durable power of attorney to appoint someone to manage finances.
What Living Trusts and Wills Cannot Do?
Neither will nor trust can help reduce taxes. Pets cannot be left property or money, however in a will you can provide a caretaker. When leaving final wishes (such as funeral arrangements), and passwords for accounts its best to assign separate documents and keep them in a secure place with other estate planning documents.
No Will or Trust?
If you don’t have a will or trust, learn more by contacting the Steel Valley Investment Group of Raymond James for more information.
Views expressed are those of the author and not necessarily those of Raymond James & Associates and are subject to change without notice. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.