They’re both legal documents, and they can both be used to protect your assets and provide for your loved ones. Wills and trusts are equally important tools for estate planning, but many people are vague on the differences between them. The first thing to know? Wills and trusts aren’t mutually exclusive. You might need both.
What a Will Does
In the broadest terms, a will determines how your affairs are handled when you die. When you create a will, you can specify what you want to happen to your assets and property. This document can be used to spell out who inherits things like art, jewelry and furniture.
For parents of minor children, a will can also be used to name a guardian. In the event that the parents die before the children reach adulthood, the courts will generally defer to the parents’ wishes when appointing a legal guardian. A will is the proper place to name your chosen guardian for your children.
It’s important to keep in mind that not all assets can be transferred using a will. Property that you jointly own with a spouse, for example, will automatically be transferred to the surviving co-owner. Similarly, an insurance policy that has a named beneficiary will be paid to that beneficiary, regardless of what you put in your will.
What a Trust Does
Trusts are a little more complicated than wills, simply because there are several different types. A trust is a financial agreement that gives a person or organization (the trustee) control over property on behalf of one or more beneficiaries. There may also be a third party called a grantor who funds the trust. The trustee makes sure that assets included in the trust are passed to the beneficiaries in keeping with terms laid out in the trust agreement.
For example, a parent might decide to create a trust as a way to provide for a disabled adult child. The parent would act as the grantor by funding the trust, and could then specify how much money the disabled child should receive each year, how that money is paid out and what conditions the child has to meet (if any) to receive the money. The parent who creates the trust would also choose a trustee to oversee the trust, distribute the assets and take care of any legal requirements like tax filing.
Differences Between the Two
Several key differences separate wills and trusts.
Choosing Between a Will and Trust
Because they serve different purposes, a will and a trust can both be part of a comprehensive estate plan. Executing a will allows you to clarify your wishes about your property and who inherits what. Creating a will is a must for anyone with minor children. You may or may not benefit from establishing a trust, too. They’re not just for the wealthy: people of all ages and financial standings benefit from these tools.
We know that there’s a lot of confusion around wills and trusts. We’re here to demystify the estate planning process. The attorneys at Ladimer Law Office PC specialize in helping clients of all ages make the plans they need to create the future they want. How can we help you with your will and trust needs? Contact us today!
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