Reports from the National Center for Health Statistics believe that the U.S. life expectancy rate for seniors is roughly 78 years old.
The good news behind these figures is that many Americans are going to have plenty of time to develop a thorough estate plan to take care of them till the end of their days.
Two frequently used estate planning tools used are trusts and wills. You might think that a trust and a will mean the same thing. Both of these tools, however, serve completely different purposes.
You can learn more from this in-depth guide on the differences between a will vs trust. Follow this guide and you’ll have what you need to ensure that your property is dispersed consistently with your final instructions.
What Is a Trust?
A trust outlines the arrangements that allow a third party to manage the property on the beneficiary’s behalf. Sometimes a trust is referred to as a “living” trust. This title applies because it means managing assets before a person dies.
A living trust allows you to state where you want assets to go and when your beneficiaries can receive them.
You can also use a living trust to manage your property if you should ever become injured or disabled. Successor trustees can manage your assets for you in the event case you can no longer manage them yourself.
It’s also important to remember that trusts only apply to the holdings that you directly transfer over to that particular trust.
If you want any of your particular assets included within your trust, you must specifically identify them as a part of that trust.
Trusts can help manage your assets after your death as well as before you die. Some people will use living trusts to direct where their holdings should go and when their beneficiaries should expect to receive them when they’re gone.
Living trusts can also help you manage your property oversee your holdings in the event you become disabled or can’t manage them by yourself.
What Is a Will?
Another planning tool is a will. Wills are written documents that outline how you want to distribute your assets after you die.
The U.S. Estate and Gift Tax Law will usually allow dispersing your assets to your surviving spouse without earning any gift or estate taxes.
The details in your last will and testament should also describe when and how you want your property distributed to other beneficiaries such as your relatives (i.e., your siblings or parents) as well as your own children.
Wills can contain specific instructions for other activities such as caring for your minor children or donating to a charity. A will can identify the guardians you want to take care of your small if you should die before they turn 18 years old and become legal adults.
Wills also cover all of the assets that you have that are under your name when you are gone. Wills won’t apply to any of those assets that you have in a partnership or a joint tenancy within another trust.
When you are alive and mentally competent, you can revise or revoke your will whenever you want to. Any version of your will needs to be signed with two witnesses present.
What Are Revocable and Irrevocable Trusts?
Living trusts are classified as either revocable or irrevocable. A revocable trust means you can revise it or cancel its directives at any point in your life.
Examples of the assets you can include in a revocable trust can include valued possessions, real estate, bank accounts, and any other investments you have.
Irrevocable trusts mean that a grantor agrees to forfeit their rights to revise or cancel the trust after it’s been created. Only the grantor’s heirs can change or generate any changes to the trust after it is written.
Irrevocable trusts also mean you hand over ownership of the trust and don’t have any more control over those assets that are listed in the trust.
An irrevocable trust is also unique in that it allows you to lower the value of your assets when your transfer your property.
This strategy could come in handy if you are applying for income-restricted programs such as Medicaid. This move could also help you avoid paying estate taxes.
Revocable trusts are more common than an irrevocable trust. Revocable trusts give a grantor more control over their assets.
If a grantor experiences any major life change, like selling any residential real estate identified within the trust, they can apply updates to the trust themselves.
Difference Between a Will and a Trust
Wills and trusts can summarize your directives on how to disperse your property once you die. However, both have different features that could affect your estate planning goals.
Review these features outlined below and you’ll see if one of these planning tools is a better option for you. These different features include the following:
Appointed Personal Representatives (“Executors”)
By law, wills require an administrator. These administrators are called personal representatives or “executors.”
Executors are adults assigned to confirm if someone’s assets are distributed consistently with the instructions contained within a will. Executors can also oversee paying off any outstanding debt or other bills that are due to creditors.
Executors also don’t receive any profits or earnings if they sell off any of the estate’s assets.
Current probate laws don’t require an executor to be an attorney or financial expert. They must show, however, that they carried out their responsibilities honestly and to the best of their ability.
Probate law defines an executor’s responsibility as their “fiduciary duty.” Someone who has a fiduciary duty must act fairly and in good faith when they execute someone’s will.
Judges appoint a will’s executor who then supervises dispersing the deceased’s assets. An executor must carry out the distribution consistent with the will’s final instructions.
Executors can perform this function without the court’s direct supervision.
A trust fund can have an administrator who oversees managing the trust’s assets. A trust administrator must also perform their duty impartially and in good faith.
However, trust funds don’t require a court to appointed a manager to disperse the assets when the grantor dies.
A trust manager known as a trustee can immediately administer any assets or holdings within a trust and distribute them to any heirs once the grantor dies.
Legal System Proceedings
Wills are subject to an area of law called probate. Probate laws safeguard someone’s wishes to distribute their assets to their proper heirs once they die.
A probate court is a section of the court system. that enforces this distribution. Probate courts also monitor whether any outstanding debts are also all paid to creditors.
Other items that a probate court reviews include verifying the validity of a will or reviewing creditor disputes for outstanding bills.
Some states offer a legal process called informal probate. Informal probate is a court process for those wills that have assets valued under a certain dollar amount.
Trusts aren’t subject to the probate or informal probate court process.
Public Accessibility to a Will’s Individual Information
Individual details contained within a living trust are confidential. Only the heirs or a who can review a historic file can see the contents.
The general public can view any will that’s filed with the local county recorder’s office. The public can also do their own estate search either by visiting the county recorder’s office or request information by mail.
Will vs Trust: Which One Is Better?
If you are still trying to decide if a will or a trust is a better option for you, here are some current life considerations that might point you in the right direction.
Your Current Age and Health Status
Living trusts aren’t necessary if you are a middle-aged person enjoying a healthy life. Living trusts are for those who know they have impending medical conditions that could eventually diminish their ability to manage their own assets.
If you’re aware of any impending health concerns that could impair these abilities, a living trust in place might bring you peace of mind.
Wills convey the grantor’s assets to their spouse once they die. If both you and your spouse both die early, a trust can help you name the guardians you want to take care of your young children until they become legal adults and ready to take care of themselves.
Time Commitments and Other Limitations
Administering a trust can put significant demands on anyone’s schedule.
Trustees need to stay on top of all ownership changes for the assets included within a trust. This includes bank accounts, vehicles buildings, or any other business enterprises you have listed within your trust.
Kinds of Assets
If you own multiple businesses or companies, you don’t want to interfere with their operations while a probate court settles your estate.
That’s why it’s important to consider whether you should include these companies within your trust.
For example, if you own residential or commercial properties in multiple states, then it’s wise to create a Revocable Living Trust.
With a revocable trust, you can deed any out-of-state property within your trust. Otherwise, your family might be faced with two different state laws that govern your properties when you’re gone.
Your heirs would have to follow those probate laws in the state where they live, as well as those probate laws in the state where your property is located. This dual form of probate is known as “ancillary probate.”
Pros to Creating Wills
Preparing your will is an affordable and direct way to ensure your property reaches your intended heirs. When you have a will in place, you can also secure an efficient legal process for your beneficiaries.
If you don’t have a will in place, your family could have bigger headaches further down the road.
When you don’t have a will, your family will spend more time in court proceedings while the probate judge reviews your assets.
This might also reduce their inheritance amounts if they have to pay legal fees to represent their request to close out your estate.
Your will can also help you plan for those important decisions that need to be made for your family in the event you die prematurely. If you have minor children, use your will to name their guardians and assign them to their care.
Creating a will has a vast number of other factors you should consider when you’re putting down your final wishes in writing.
The legal professionals at Freedom Law can help you organize these factors and what other details you should cover as you prepare your final wishes.
Pros to Creating a Trust
Creating a trust will keep anyone from changing it once you’ve created it. Certain trusts also allow grantors the ability to lower the value of their assets when they’ve transferred them to their heirs.
This flexibility helps their beneficiaries avoid paying costly estate taxes. If you decrease the value of your assets, you might also qualify for income-restricted programs like Medicare, later on in life.
Some trusts can protect your holdings if they are managed correctly. This level of protection will help protect you from a creditor or anyone else who might try to sue you.
Creating a trust will also help keep your private affairs out of the public eye.
You’ll also avoid paying those additional court fees you’d need to pay to go through the probate court legal process.
What Are Your Next Steps?
Contact an estate planning lawyer who can help guide you through the differences between a will vs trust. These professionals can help you determine which one will serve your interests the best.
Wills and trust have their own individual characteristics to help you disperse your property in a way that benefits those you love the most.
You can also find more helpful information on our website these end-of-life decisions. Trust us to help you protect what you’ve spent a lifetime to build.