The Differences Between Wills and Trusts
A will is a legal document that directs who will receive your assets upon your death, while a trust is a legal arrangement in which a trustee (someone selected by you) manages and holds your assets and, if desired, distributes income to the beneficiaries of the trust, as well as directs the disposition of the trust’s assets after your death.
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The Differences Between Wills and Trusts
A will is a legal document that directs who will receive your assets upon your death, while a trust is a legal arrangement in which a trustee (someone selected by you) manages and holds your assets and, if desired, distributes income to the beneficiaries of the trust, as well as directs the disposition of the trust’s assets after your death.
Let’s examine some of the key differences between wills and trusts.
| A Will… | A Trust… |
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Goes into effect upon your death
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Goes into effect as soon as it’s signed and allows you to transfer assets while you’re still alive
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Is used to name a guardian for your children or declare your final wishes
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Cannot be used to name a guardian or declare final wishes |
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Covers property that is in your name when you die
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Covers only the property that is transferred into it |
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Assets transferred by a will must go through the probate process before they can be transferred to the beneficiaries
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Assets in a trust bypass probate when you die
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Becomes public record
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Has no requirement to be filed with the court or other public entity, ensuring privacy
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Has limited control over assets distributed; once the property is distributed to an heir, he or she has full control over those assets
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Provides you greater control of assets; for instance, a trust can direct that income not be distributed if a beneficiary is not actively engaged in substance abuse treatments
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Cannot address who should manage your assets in the event of your incapacitation or loss of ability to make financial decisions
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Can include provisions that allow for someone to assume management of the trust in the event you are unable |
While having a will is as essential as it is straightforward, trusts are much more complicated. Trusts are designed to accomplish many financial objectives. For example, a revocable living trust can be used to own assets in your lifetime and direct the transfer of those assets to heirs without having to go through the probate process. A Qualified Terminable Interest Trust (QTIP) can be employed to provide income to one party during their lifetime, most typically a spouse from a second marriage, while directing that the corpus be distributed to children from the first marriage.
Individuals are strongly advised to seek the counsel of an estate planning attorney and their tax advisor as they seek the most appropriate integration of wills and trusts to accomplish their estate planning objectives.
Please reference disclosures at: https://blog.americanportfolios.com/disclosures/
