What Are Wills and Trusts and Which Do You Need?
(DM) — Everyone has heard the terms “wills” and “trusts,” but not everyone knows the differences between the two. Both are useful when planning your estate (such as for elder members of your family) that serve different purposes, and both can work together to create a complete plan.
The main difference between a will and a trust is that a will only goes into effect after you die, while a trust immediately takes effect after its creation. A will is a document that declares who will receive your property at your death, and it appoints a legal representative to carry out your desires.
Alternatively, a trust can be used to begin distributing property at any time – not just after death. A trust is a legal agreement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to the property for another person, called a “beneficiary.”
A trust usually has two types of beneficiaries – one that receives income from the trust during their life, and another that receives whatever is left over after the first beneficiary dies.
Does a trust override a will?
A will and a trust are separate legal documents that typically work together to form a unified estate plan. While the will and trust would ideally work together, because they are separate documents, they sometimes conflict with one another – either on purpose or accidentally.
Whether a will supersedes a conflicting trust generally depends on the type of trust involved, and the timing of the transfers under the will and trust. A living trust generally supersedes a will, but a will generally supersede a testamentary trust.
What are the advantages of putting your house in a trust?
Placing your house in a trust include avoiding probate court, saving on estate taxes and possibly protecting your home from certain creditors. Disadvantages include the cost of creating the trust and the paperwork.
How much does it cost to set up a trust?
Attorney’s fees are generally the majority of the cost associated with creating a trust. The cost for an attorney to draft a living trust can range from $1,000 to $1,500 for individuals and $1,200 to $2,500 for married couples. However, depending on where you live and the caliber of the lawyer, these costs can vary.
How does a trust work alongside a will?
A trust is created when a person (settlor) gives property to another person (trustee) to hold for the benefit of a third person (beneficiary). It lays out who the beneficiaries are, who the trustees are, and how the trust will be administered. Trusts can hold assets, invest and borrow money, and operate businesses.
Is a will better than a trust?
A trust does not need to go through a court to be approved, which can save time and money. A trust can remain private, unlike a will, which must go through public record. Wills and trusts each have their advantages and disadvantages, and only a trusted professional can guide you on which is best for you and your situation.
What are the disadvantages of a living trust?
A living trust is more expensive to set up than a typical will because it must be actively managed after it is created. The most important thing, however, is a living trust is useless unless it’s funded. A living trust only can control the assets that have been placed into it.
If your assets have not been transferred, or if you die without funding the trust, the trust will be of no benefit as your estate will still have to go through the legal due diligence and could face hefty state taxation.
Now that you understand a little of the differences between wills and trusts, you will be able to discuss with your lawyer and loved one’s proper estate planning for life and after. Please note that this is not legal advice, and any legal decisions should be discussed with a professional before taking action.