Estate planning, though, always seems like something that can wait until tomorrow.
When you do start, the terms can be so intimidating and confusing it might cause you to put it off even longer. Especially when it comes to choosing a will vs. trust. Fortunately, the decision isn’t as complicated as you think. And the process of setting each up is even easier.
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Understanding the Difference Between a Will and a Trust
Both wills and trusts establish your wishes as to how you want your property and assets passed on. The differences lie in the way in which your assets are distributed.
A last will and testament, often just referred to as a will, is the foundation of your estate plan. It’s a legal document that establishes how you want your property and assets passed on after your death.
“A will gives you more flexibility over how your assets, no matter how large or small, are distributed in the event you pass,” said Rob Williams, VP of Financial Planning at Charles Schwab. “Having a will can lessen the stress your family will go through in settling your estate, as any decisions without a will typically go to judges or other state officials–a process that, depending on the state and estate, can get very long and complicated.”
A will also appoints guardianship for your children and pets and allows you to designate money to be left to their caretakers. One thing a will doesn’t allow is to put conditions on that money. For example, you can’t require money left to the caretaker of a child be used only on that child.
Finally, an important distinction between a will and a trust is that upon your death, your will goes into probate, a judicial process where the court makes sure the document is legally binding and your wishes are carried out in accordance with it.
A living trust is a legal document that appoints a trustee responsible for managing your assets for the benefit of the beneficiaries. Your trustee is usually a person but you can also appoint a bank or law firm as your trustee. Designating a trustee allows your family to avoid the lengthy and expensive probate process and access your estate more quickly.
The main difference between a trust and a will is that trusts give you even more control over how your assets are distributed. A trust doesn’t have to take effect once you die. Your trust can dictate your assets start distribution at any time, including while you’re still alive. You can even appoint yourself as the trustee while you’re alive and change the trust as often as you like.
You can also designate how funds that are distributed from the trust are spent. Parents of a child who’ll need long-term care often establish a special needs trust to ensure the funds left to their child’s caretakers are used solely to benefit the child.
Remember, a will and trust are just part of your estate plan. There are other essential estate planning documents that you’ll eventually need to protect your loved ones and ensure your wishes are carried out appropriately.
Related: Best Online Will Maker
Can You Have Both a Will and a Living Trust?
You can have both a will and a living trust, and if you have a trust, you will have both. A trust is simply an addition to a will that puts the control of your estate into the hands of a trustee of your choosing instead of the probate court.
Everyone needs a will but not everyone needs a trust. By understanding the unique characteristics of each, you can make the decision that’s right for you.
When is Probate Not Required?
Even without a will, not all of your assets will go to probate. Jointly owned property with the right of survivorship goes directly to the joint owner. And any account with a beneficiary form, such as a bank account, retirement account, or life insurance policy, will be paid to the beneficiary named on the form, overriding any beneficiaries to the account named in a will or trust.
What makes your will so important is everything else it covers when you go to probate court. Without a will, it’s the court that decides who gets guardianship of your kids and pets, who gets your solely-owned property, and how your possessions are distributed. This process is lengthy and can cost your family around 10% of the value of your estate.
The Advantages and Disadvantages of a Trust
Adding a trust to your estate plan is another level of protection for your assets. You can put conditions on how your assets are divided, when they’re distributed, and get them distributed efficiently.
“Having a trust can provide greater flexibility over how you want assets distributed,” Williams said. “It can include people other than your direct heirs and also any charitable donations you might want to make.”
If trusts have so many advantages, why doesn’t everyone have a trust?
Trusts have historically been reserved for the wealthy because they’ve always been expensive to set up and maintain. While you can get a fill-in-the-blank will template for free, a trust costs around $1,200 to $2,000 to establish.
It may also cost money to maintain the trust and possibly pay your trustee. Thanks to technology, sites like Trust & Will have cut that cost down significantly but it’s still a barrier to entry for some people.
Don’t Wait to Start Your Estate Planning
Every adult with a bank account should at least have a will. Then, as your finances and your life become more complex, you can add other estate planning documents and consider creating a trust.
It’s easier than ever to make sure you have all the estate planning documents you need in one place. You don’t have to worry about scheduling time with lawyers or spending a lot of money. You can get a trust from Trust & Will for $399. If that still sounds like a lot to you then you’re probably safe with a will for now. You can get a comprehensive estate plan with a will for just $69 from Trust & Will.
So whatever you do, don’t wait. The earlier you start your estate planning the easier it’ll be to maintain in the future.
Read More: How and Where to Create a Will Online