Wills and Trusts are both legal documents that let you designate your heirs and pass down assets to them, but they don’t work the same way. There are important distinctions between a last will and a financial trust. Understanding the difference between a Will and a Trust will help you decide how to handle your assets.
What Is a Will?
There are several different kinds of wills, but the most common and the kind you’re most likely to use, is a testamentary will. Testamentary wills dictate what you want to happen to your assets after your death. It’s also very common to include details about how you want your remains cared for in your will, including any details important for your memorial or funeral.
Testamentary wills should include a catalog of your goods and assets, including items of sentimental value like family heirlooms. You’ll also name beneficiaries and can choose to outline which goods and assets each beneficiary will receive.
Wills are separate from retirement accounts and must go through probate and can be contested in court.
When Is a Will a Good Idea?
Wills are a good idea if you have assets separate from your retirement accounts you want to pass down to your beneficiaries and you don’t think your beneficiaries will contest your decisions. Wills also allow you to disinherit people who would normally inherit, like your children, at your discretion. Wills are also important if you have children since you can name guardianship in your will.
Wills may not be a good idea on their own if your assets exceed a certain amount since your will does not protect your assets from estate and inheritance taxes.
What Is a Trust?
Trusts are different and can also be involved in end-of-life planning. When you create a trust, you hand off assets to a fiduciary to take care of those assets on behalf of your beneficiary. There are many kinds of trusts, but the two which are most important for the end-of-life planning are testamentary trusts and revocable living trusts.
Testamentary trusts are more expensive to create and maintain than wills but can also give you more control over how your assets will be handled after death. You can create the terms of your trust with the help of a financial planner or attorney, and the holder of the trust will execute your wishes.
Living trusts are a little more common and give you more control over the trust while you’re alive. They can be revoked or changed at any time up until your death and protect your assets from going through probate court.
When Is a Trust a Good Idea?
Trusts are a good way to avoid probate court and can also help you avoid court fees, which means that using a trust can keep your estate more intact in certain cases. Trusts also usually can’t be challenged in court, which makes them a good option if you think your beneficiaries may want to contest your decisions.
Hopefully, this article helped clear up some of the differences between these two important documents. Of course, we can help if you aren’t sure which option is best for your estate, and our team of financial planners can help you protect your estate and keep your assets safe for your beneficiaries.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.