When you look at your list of daily tasks and appointments, what jumps out? The presentation that you have to prepare? The trip that you need to plan? The start of your daughter’s soccer game?
Thanks to all of these seemingly urgent tasks, one of the last things on your mind is probably writing a will or thinking about putting your assets in a trust–both of which can ensure that you leave loved ones properly cared for, prevent disagreements among possible heirs and prevent unnecessary attorney fees from eating away at your estate in a probate.
We’ll explain the differences between a will and a trust, and what a probate is–not to mention just how important this kind of documentation is, especially at the time of death.
What is the difference between a Will and a Trust?
What Is a Will?
A will is a document that tells legal authorities what should happen to your possessions when you die. It can be any length, and in most states, it must be witnessed by others who agree that you have the mental capacity to make your own choices.
If you have minor children, or pets, it designates their legal guardian (with whom your children would live), and sometimes a financial guardian, who’d make sure that your assets are distributed to your kids appropriately through their minor years and in full when they reach legal age or another designated date. After you die, a will must be verified as valid in “probate court,” which is a court of law that deals specifically with wills and estates. This process can be lengthy and it can cost your heirs 5-10% of the estate.
What Is a Trust?
A trust is created to appropiate property intended for the benefit of one party, the “beneficiary,” is held by another party, the “trustee.” The trustee and the beneficiary can also be the same person; sometimes there are many beneficiaries, and sometimes there are many trustees. With a Trust you have the freedom to add as. many beneficiaries as you would like.
Trusts allow your assets and possessions to skip the probate court process and go directly to intended recipients, saving time and money spent on court and attorney fees.
Trusts can also be arranged to cooperate with laws currently in effect, in order to avoid various types of taxes. A Trust also allows you to maintain max control over your assets, and you are able to amend or change things as you wish.
Unfortunately, 65% of American adults do not have wills or trusts set up to protect their families.
Without a Trust, you take a risk. Your money, house, car, boat, other material items and minor children land in limbo–with no clear recipient, beneficiary or guardian to receive them. A trust requires planning, maintenance and can be more expensive to create than a will. However, upon your death, the trust will be immediately transferred to your beneficiary, with no lengthy and costly probate involved.
Should I Have a Will or a Trust?
Whether a will or a trust is advisable depends on your situation, although parents with minor children should definitely have a will.
People who have noted beneficiaries on all of their retirement accounts and/or instructions on their non-retirement accounts and assets may not need a will if they have no other assets. Since beneficiary forms are part of many financial accounts, the beneficiary named in those accounts will be honored first, before a will or trust, or lack thereof.
Same-sex or unmarried couples with a positive net worth should have a trust, if they want their assets to pass on to a partner. Folks with a high net worth should also consider a trust. (A will also works, but it will likely cost more time and money to go through probate court a trust is always recommended, or both.)
Schedule a free consultation to see what estate planning option would be best for you. Let us help you protect your family and their future.