Protecting your assets is an essential part of a wealth management plan. Asset protection is primarily done by creating an entity or structure that has a legal status.
There are a number of estate planning options available, choosing the one that will best suit your needs can get overwhelming.
In this article we will try and mark out some of the main differences between a will and a trust to see what may be right for you.
Differences Between a Will and a Trust
What is a Will?
A will is a legal document that specifies the distribution of your assets to your family members or loved ones after you pass away. Generally, a will allows you to:
- Allocate your assets and properties to your beneficiaries
- Appoint an executor to ensure your affairs are settled according to the terms indicated in your will
- Assign a guardian for your dependents
- Fund and plan your funeral
To be effective, a will should be drawn up through an estate planning attorney and authenticated through a probate hearing, a court-supervised process. A will allows you the option to revoke or amend your will any time after it has been executed. A Will allows you the ability to plan for who gets your estate, ensures that your wishes will be carried out and allows courts to intervene on the wills behalf to ensure the will is carried out should any disagreements arise.
What is a Trust?
A trust is a legal entity designed to managed by a trustor who gives authority of asset ownership over to a trustee for the beneficial owner or third party.
You also have the option to either manage the trust on your own or assign the management to an individual or corporate entity.
A trust is used as a vehicle to protect a personal property that is unnegotiated from an individual. The most common use of trusts are for asset protection, privacy and estate planning.
Different Types of Wills
The different types of Wills are:
- Holographic Will - written by the author
- Oral Will - made through speaking his/her wishes
- Pour-over Wills - Combination of trust & will entity
- Mutual Will - draw together by a couple
Different Type of Trusts
There are many different types of trust, each having it's own unique structure and arrangements:
- Special Needs Trust
- Spendthrift Trust
- Tax By-Pass Trust
- Revocable Trust
- Irrevocable Trust
- Asset Protection Trust
- Charitable Trust
- Constructive Trust
Benefits of a Living Trust
Establishing a trust to manage the estate has several benefits:
- With a living trust, you will not go through a probate process. Probate is an asset distribution process that's performed by the court. Avoiding probate can help your beneficiaries save time and money. Since living trusts are not considered public information, the assets are distributed in private.
- Can reduce taxation, increase privacy and divide assets and property between entities
- Trusts are more flexible can be amended, changed or disbanded
Wills vs. Trust: Key Differences
- Assembling a trust is both time-consuming and expensive whereas wills don't need any ongoing management and are easier to create but are less flexible.
- Once filed in the court for probate hearing, the will becomes a public record. This is not the same as trusts, as they remain private. Depending on the situation, you might want to have personal matters settled in private. If such is the case, trust is a better option.
- The cost of an attorney-drafted trust varies depending on the state. In essence, the average cost can range from $1000 to $5000. The average drafting fee for a will, on the other hand, is around $300.
- The set-up fees associated with will make it an appealing option for many. However, trust gives beneficiaries the luxury to skip the probate process. When the probate process is skipped, it translates to significant savings in money and time for the beneficiaries.
- When it comes to function, it pays to remember that one cannot replace the other. The primary focus of trust is the distribution of specific assets like property or life insurance. On the other hand, a will directs the distribution of everything in the estate, including the guardianship of dependents.
Will vs. Trust: Which One is Best for You?
Choosing to create a Will or a Trust will likely depend upon your circumstances and what your final goals might be. Creating a will is likely to be more focused on setting your affairs in order after your passing whereas trust is much more versatile and can be used in different capacities.
Get in touch see what is right for you.