Have you ever thought about the financial well-being of your beloved ones when you pass away? Do you care what will happen to your kids or assets if you die? Yeah, I know these are bitter questions, but they must be asked. Well, will and trust are two legal instruments that can provide you and your family members some peace of mind dealing with these resentful questions and issues. They can help your loved ones avoid potential financial hardship. Indeed, no one knows what the future has in store for us, so it is essential to make your estate plan.
What Is a Will?
A will is an official legal document that declares one’s wishes for his/her money and property after death. It guarantees that your money and assets will pass to your intended inheritors.
Five Reasons You Should Have a Will:
- If you do not have a will, the law will decide upon the distribution of your money and property; and this can be contrary to your wishes. However, if you have a will, there is a better chance of getting things to happen in the way you want.
- If you don’t have a will, the distribution of your estate (money, property, possession, and all these things together called your ‘estate’) will be time-consuming, costly, burdensome, and nerve-racking.
- It can reduce the amount of inheritance tax.
- You can also use it to tell people about your other wishes, e.g., about how and where you want to be buried.
- In your will, you can choose a guardian for your minor children. Moreover, if you have a pet that you love, like your own child, you can ensure that someone takes care of your pet after your death.
What Is a Trust?
A trust is a legal relationship in which one party (known as a trustor or grantor) gives another party (a trustee) the right to the ownership of a property or assets for the benefit of a third party (i.e., the beneficiary).
Two Basic Types of Trust:
- Revocable (or living) Trusts can be changed by the grantor. Usually, a revocable trust turns into an irrevocable trust after the death of the grantor.
- Irrevocable Trusts cannot be changed or modified.
What Is the Difference Between a Will and Trust?
- The most important difference between will and trust is the way the estate is held. When you write a will, you mention the name of heirs or beneficiaries together with the property that they will receive. In a trust, you also name your beneficiaries along with the property they are to receive, but the property must be transferred into the trust for their benefit.
*Now, you may ask that what is the difference between an heir and a beneficiary? Though people use these two terms interchangeably, there are differences between them:
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An heir: a person who is related to the deceased by blood; it also includes a spouse.
A beneficiary: one whose name is explicitly mentioned in a will, trust, or insurance policy to receive property or financial assets. A beneficiary can be not an heir; for example, a friend, a long-term but unmarried partner, ex-spouse, a stepchild, a charity, or even a pet can be a beneficiary.
If a person dies with no will or trust, it is usually heirs who inherit assets, including one’s spouse and children, and in some cases, his/her parents or siblings.
2. The second difference between will and trust is probate. Probate is the official and legal proving of a will. This process varies according to place and situation, but generally, it is very time-consuming, expensive, and controversial. A living trust does not pass through probate, while a will can. In other words, trust helps avoid probate.
3. A will can be contested and challenged in the court, but a trust can not. In other words, will have a contentious nature.
4. Unlike a will, a living trust goes into effect once you create and sign it; while you are still alive. But, a will can be effective only after your death.
5. In a trust, you can not choose a guardian for your minor children, but in a will, you can do this.
6. Trust gives you more control over the distribution of assets and property.
Put differently, trusts give more control over when and how your assets are distributed.
7. There are different forms and types of trust.
8. Creating a will is much easier and less expensive than a trust.
Should I have a Will or Trust? Which One Is Better?
Choosing between a will and trust is a personal choice, and it depends on many personal factors (though some attorneys recommend having both; because each one has a different and separate function). Overall, to answer this question correctly and appropriately, you have to assess your situation, your goals, and needs at the very beginning of this process.
If you have minor kids and want to choose a guardian for them after your death, you must have a will.
- If you have an heir or beneficiary who is underage or has a mental disability (i.e., one who is unable to manage finances), setting up a trust is a good choice.
- Four Online Legal Services for Making a Will or Trust:
- LegalZoom: A simple trust done online with LegalZoom costs less than $300
- Nolo’s Quicken WillMaker & Trust
- Trust & Will
If you want to make an estate plan, it is a good idea to consult an attorney first. They have good expertise to offer assistance and answer your specific questions. Remember that having both a will and a trust is a true gift for your family members and friends, showing your care and love for them.
“If you have any feedback about the importance of will and trust that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”
NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.