Wills and trusts are both estate-planning tools that can help ensure your assets are protected and bequeathed to your heirs. However, the transfer process becomes more involved when passing wealth to a subsequent generation. We highly recommend consulting with a legal advisor since both of these are legal documents and there are a number of state-specific requirements and issues.

A will is a written document expressing a deceased person’s wishes, which could include any intent from naming guardians of minor children to distributing assets upon death. Trusts are generally active the day you create them, and a grantor may list the distribution of assets before their death, unlike a will. Unlike a trust, most wills (excluding those that fit within the “small estate” limit) go through probate and can also be contested.

Will

• It’s a legally enforceable document stating how you want your affairs handled and your assets distributed after you die
• Can include a directive of how you want your funeral or memorial managed
• Your estate becomes part of the public record, and anything left by a will typically goes through probate court
• Retirement accounts and life insurance policies that pass straight to beneficiaries don’t go through the probate process
• If you have minor-aged children at home, it’s important to have a will that appoints guardianship of your children
• A will allows you to disinherit a child or spouse under certain circumstances
• If you die without a will, a condition called intestate is enacted, and courts follow a set formula for how to divide your assets, which could result in actions that negatively impact a surviving spouse or child
• If your estate is worth less than $11.7 million, there’s no estate tax return required, and you won’t be charged an estate tax

 

Revocable Living Trust

• It’s called a living trust because it’s created and maintained while the owner/trustor is alive and is revocable because it may be changed during the life of the trustor
• It holds a fiduciary relationship in which you give another party authority to handle your assets for the benefit of a third party
• There generally aren’t court or attorney fees after the trust is established
• Your property can pass immediately and directly to your named beneficiaries, skipping the probate process
• The contents of the trust can rarely be challenged in court, and the contents of the trust are held private
• One isn’t better than another, but if any issue arises, a living trust will most likely override a will
• To be valid, a trust must identify the following: the trustor, the trustee, the successor trustee, and the trust beneficiaries
• When set up properly, trusts can reduce how much of an estate is taxed at the 40% rate

 

 

 

Adapted from Investopedia1

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1 https://www.investopedia.com/articles/personal-finance/051315/will-vs-trust-difference-between-two.asp

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