Trusts vs Wills

Trusts vs Wills — What’s the best way to pass an inheritance to your family?

Wills and Trusts are both used for estate planning but have big differences you should know about.

If you’re thinking about estate planning, you’ve probably come across two common methods of passing wealth and belongings to someone else — Trusts and Wills.

However, there are big differences between these two documents, especially when it comes to when and how your assets are distributed.

Circumstances vary from person to person, so you should consult an estate planning professional on the specifics. That said, both Trusts and Wills have some general features that you should know about: here are the main differences between these two legal tools, including who they’re for, how they function, and the types available.

What is a will?

A will is a legal document you create that details how you want your assets and belongings to be distributed after you die. Wills can cover everything from who inherits your jewelry to who takes ownership of your house.

Generally, Wills include:

• An executor. This is the person who’s in charge of carrying out the will

• Beneficiaries. The people you’re naming to inherit items or money.

• Guardians for children. If applicable, you’ll name guardians for minor children.

A Will has no effect until you die. You set up your document, sign and witness it, but all of the work of transferring the property in line with your wishes is put off until you die. Property is then transferred to those named in your Will through a legal process called probate after your death.

In Probate, the Master of the Court grants someone permission to act for the estate. That person is your Executor. The probate process is how the legal system validates your Will and gives the go-ahead to the Executor to begin distributing your assets.

Note that there’s a difference between a Will (also called a Last Will and Testament) and a Living Will. While a Will directs the distribution of your financial and material possessions, a Living Will provides instructions for medical treatment if you’re unable to communicate your wishes. While both are legal documents, Living Wills are focused on your care rather than your finances and possessions. You can have both a Last Will and Testament and a Living Will — and in many cases, having both is important.

What is a trust?

A Trust is another estate planning tool that can be used to transfer property and wealth to others. While a Will names who things would go to, a Trust takes it one step further.

There are two main types of Trusts: Inter-vivos Trusts (sometimes known as Living Trusts) are set up during your lifetime. Testamentary Trusts are set up by your Executor after your death, under instructions in your Will.

If you transfer property into your Inter Vivos (Living) Trust, as care of your Trustees, the administrative work of the transfers is done while you’re still alive so that when you die, the Trust can continue.

What Assets can be put into Trust?

You can transfer your major assets into a Trust, or specify them in your Will. Any asset that can pass under a will can also pass under a Trust, but Trustees may have administrative issues dealing with personal assets such as shotguns or jewelry. Assets commonly placed into Trust include Real Estate (properties) and investment portfolios.

Unlike Wills, (living) Trusts don’t go through the probate process — a feature that some find useful. A Trust can also be useful in more complicated estate situations, or to protect young adults and minor children from accessing too much money at too early an age.

Pros and cons of Wills & Trusts

If you’re deciding between a Will and a Trust - DONT. Everyone should put their Will in place, to avoid the legal process of dying intestate. Once you have your WiIl in place, you can look at setting up a Trust, if that makes sense for you.

Pros of a will

• Affordability. Wills are generally simpler documents and are more affordable to create because of that fact.

• No need to transfer assets while you’re alive. In a Will, possessions are transferred through the probate process after you die.

• Revocability - you can change your Will at any time (provided you are of sound mind and not under undue influence!)

Cons of a will

• Your Assets must go through probate. Not everyone wants their possessions to go through probate. It’s a court proceeding, it takes time and it’s not confidential.

• Your information may be in the public domain. As a part of the probate process, your estate is advertised and might be accessed by someone curious enough to request it.

Here’s what you should know about the advantages and disadvantages of a living trust:

Pros of a trust

• More privacy. Since the estate never goes through the probate process, only those who are listed in the Trust as the Settlor (Founder), Trustee and Beneficiaries can see the records.

• Avoids probate. Since trusts can avoid probate, your assets aren’t in the public domain and can avoid the time and costs associated with the probate process.

Cons of a trust

• Affordability. It costs more to create a Trust than it would a Will. There are also costs associated with running the Trust year to year.

• More complex. While Wills are relatively straightforward, trusts can be more complicated to set up and administrate.

Who needs an estate plan?

Almost anyone over the age of 18 will benefit from estate planning. It is especially vital if you have Assets or Dependents.

Having a Will can direct those you care about in an already difficult time, and make sure that your belongings and assets are distributed how you’d like. In the case of a Living Will, it can also direct your care if you’re unable to communicate those wishes.

If you die without a Will, the law dictates who can inherit, and in what proportions. These rules probably don’t align with your family situation or wishes. Whatever your financial situation, you can benefit from having directions laid out just in case.