What’s the difference between a will and a trust, and which is right for you?
Do you have your will and trust completed? Estate planning is not a fun topic of conversation for most people. But you must make a clear plan for your assets upon your death. The unexpected passing of a person with no will or trust creates legal headaches for his or her heirs. The probate process can take months, even years to identify beneficiaries and sort out the estate. Court fees can run into tens of thousands of dollars.
But how do you know if you need a will or trust, or both? It’s important to understand what both documents do for people. To help you through the first part of your estate planning, let’s talk about the differences between a will and a trust.
Wills always go through probate court, but having a will makes the asset distribution process smooth and fast. Wills become public record when they enter probate court after the person’s death. Your will explains your final wishes for the judge presiding over your estate transfer. It designates who gets which of your assets upon your death.
If you have surviving minor children, you can appoint a guardian for them in your will. Some people even appoint guardians for their pets in their will. If somebody in the family really ticked you off, you can also use your will to disinherit a child or spouse in some circumstances.
Testamentary trusts work in conjunction with wills. The testamentary trust is the “testament” part of your “last will and testament.” Your trust instructs the executor of your estate to create the trust upon your death. Because it goes into effect after your death, testamentary trusts are irrevocable. Testamentary trusts must go through probate court for authentication, which means your heirs may have to hire an attorney to guide them through the legal process.
Testamentary trusts are often used when the trustor (you) has disabled or minor beneficiaries. Your assets stay in the trust until a time you specify. For example, you can decide that the trust distributes when your beneficiaries reach a certain age, graduate from college, or get married. Or, you can select a specific date for the distribution of your trust.
These are “living” trusts because they go into effect while you are alive. Living trusts are revocable, which means you can make changes at any time up to your death or mental incapacitation. Once you die, a living trust becomes irrevocable. Your property transfers to your heirs at a time you specify without having to go through probate court.
The assets in a living trust are still subject to estate taxes. Living trusts make sense for people with extensive assets to protect. People concerned about the time and cost associated with the probate process also benefit from living trusts.
Do You Need to Write Your Will or Trust?
Incompass Tax Estate and Business Solutions has estate planning experts who can help. Ensure your estate’s longevity for generations to come by clicking or calling Incompass today at (916) 974-9393.