When planning for the future, you should consider how you want your assets and belongings distributed when you are gone.
Two common legal tools for this purpose are wills and trusts. They both serve the same general purpose of outlining your wishes regarding your estate, but there are differences between the two.
What is a will?
According to CNBC, 67% of Americans have no estate plan in place. This is just asking for trouble.
A will is a legal document that outlines how you want your executor to distribute your assets after your death. You divide them amongst named beneficiaries. One of the advantages of a will is its simplicity and accessibility. It is easy to create a will and often the first step individuals take in estate planning.
In a will, you can designate guardians for minor children, specify funeral arrangements and name your executor to carry out your wishes as outlined in the document. The administration of a will generally goes through a legal process known as probate. The court oversees the distribution of assets as specified in the will.
What is a trust?
A trust, on the other hand, is a legal arrangement that allows a third party, known as the trustee, to hold assets on behalf of beneficiaries. Unlike a will, which only goes into effect after your death, a trust can be active during your lifetime. This means the trustee can manage and distribute assets according to your instructions both before and after your passing.
Trusts offer added flexibility and control over the distribution of assets. They can help avoid the probate process, which can be time-consuming and expensive. Trusts provide privacy since they do not become public record.
Which is right for you?
Deciding whether a will or a trust is right for you depends on various factors, including the size and complexity of your estate, your specific wishes regarding asset distribution and your preferences for privacy and control. Consulting an estate planner will help you make the right choice.
Whether a will or a trust, having an estate plan in place will help avoid arguments and legal issues between your loved ones after you pass.