While we are young, many of us neglect to consider what will happen to our family and property after we pass away. Youth gives us the illusion of invulnerability, but the truth is that tomorrow is not promised to anyone.
So it’s a smart decision to face the inevitable head-on and create a will or a trust to take care of your estate – no matter how big or small – just in case you don’t have the chance to tomorrow.
Estate planning is a branch of law that focuses on the legalities of divvying up your assets and expenses when you are no longer here to do so. Instead of leaving all of the headaches and stresses up to your loved ones, who are likely going to be grieving for you at the time, you should decide whether you need a will or a trust and take care of it yourself now.
But what are the differences between a will and a trust, and which is better? Here is all you need to know about both of them and the pros and cons of each.
What is a Will and What is a Trust?
A will is the most commonly known way to leave instructions about your wishes after your death. It is a legal document that lets those behind know what you want to happen to your property. It is also used to name an executor of the will, name guardians of minor children and their belongings, including any money bequeathed to them, take care of any pets left behind, and make decisions about debts and taxes.
A will should not be used to appoint burial instructions since it is frequently not read for weeks or months after the deceased’s passing. It also is not the right place to distribute funds that are already taken care of through other arrangements or to leave anything to your pet. However, a will can be a backup to a living trust, in which case these things are usually already taken care of.
The other option besides a will to distribute your assets is a trust. A trust is a legal document that is created by you and can be run by you until you are unfit to do so. The trustee controls it, but this person is either you in the role of the grantor or someone you have chosen to step in when you cannot. A trust lists all of the assets the beneficiary is to receive when you pass away.
Trusts can be created by anyone with any property or assets. While wills are smart to have to ensure your property is distributed as you prefer, trusts do the same thing but bring with them other benefits, as well.
The Pros and Cons of Wills vs. Trusts
The biggest pro about a will is it can be simple to put together and can even be done by you. By law, you don’t have to have it notarized or have it written by a lawyer. However, if there is a dispute after your death, having these things to solidify the legality of your will helps ensure your wishes are carried out.
On the other hand, the biggest con of a will is that your beneficiaries are not going to be exempt from paying taxes on whatever you leave behind to them. Instead, your property will likely end up in probate court for anywhere from months to a year before your loved ones will be able to inherit it themselves, and they will be taxed on it.
If taxes and probate are a concern of yours, you should turn to a trust for your assets and property. While a trust won’t eliminate taxes completely, it can help reduce the liability of what your beneficiaries will owe. Trust also helps your loved ones to avoid probate.
In the event that you have a beneficiary who has special needs and will require long-term care, you can’t address that in a will. A special needs trust can be created to give your loved one an extra income that won’t interfere with their government benefits and will ensure they are taken care of.
A trust is also simple to do if you do not have a lot of complicated assets, debts, and property. You need the name of the person who is creating the trust to be the grantor, the name of the person managing the trust, or trustee, which can be you, and the person who will take over when the trustor passes away. You’ll also need the beneficiaries.
As with a will, a lawyer is not necessary to create a trust. However, to ensure everything holds up legally and to prevent any disputes after you pass away, many people turn to an estate planning attorney to help them.
Why You Need to Set up a Will or a Trust
Whether you choose to use a will or a trust, the fact is that someone is going to take care of your property after you are gone. By planning ahead and writing a will or creating a trust, you have the peace of mind of knowing that it will be done the way that you want it to happen.
You also know that by creating your will or trust, you are reducing the stress on the loved ones that you are leaving behind. There is no ambiguity about what goes to whom and no arguing over property. But if you want to be sure that your choices are legally binding and can stand up to scrutiny if contested, you should speak to an estate attorney.
Plan Ahead for Your Property and Assets
A will and a trust each have their own advantages and disadvantages, so you will have to do your research to decide which one is right for you. But planning ahead and taking control of your property and assets and who receives them is simply smart financial sense.