You’ve finally decided to create an estate plan because you don’t want to leave it up to the court to decide how your assets will be divided. Good for you! Now you’re wondering whether you need a trust or a will. Learn more about the differences and how to determine which one fits your needs.
What Is a Trust?
A trust is a financially and legally binding agreement that gives a third party, called a trustee, the legal title to your properties. The trustee holds those assets for the beneficiaries. The beneficiaries receive income from the trust per the directives of the trust, which are set up by you. The trustee doesn’t benefit from the trust, but administrates it to the appropriate people. You can set up the trust while you are living, and you can be the beneficiary until you die, at which point, the next beneficiaries would reap the income.
How Is a Will Different from a Trust?
A will is a legal document that outlines how you want your assets or estate distributed upon your death. A will does not take effect until you die. A trust becomes effective as soon as it is organized. If you do have both a will and a trust, only the property outside of the trust will go through probate. Assets held by a trust bypass probate. A will becomes part of the public record, while a trust is private.
Wills let you name a guardian for minor children. Your will can also outline any funeral arrangements you want. A trust cannot do those things. However, a trust can plan for times that you might be unable to manage your assets when you’re still living. A will cannot do that. A trust may save you on taxes, while a will does not. A trust can be more specific in distributing assets than a will. You can name how and when your beneficiaries get their inheritance.
Which One Is Right for You?
A will and a trust are both estate planning methods that can work together to ensure your beneficiaries receive their due upon your death. You may want a trust, but you may still need a will. You should work with an estate planning attorney, like an estate planning attorney, to determine what you really need based on your current assets, your family, and your tax burdens. The main thing to remember is that you do need some kind of estate planning to make sure that your wishes are followed, instead of leaving that determination to the court.