Unlocking the Secrets of Estate Planning: Navigating the Distinctions Between Wills and Trusts
Trust
A trust is an agreement where a legal entity, known as a trust, controls assets for the benefit of another person. You can create a trust to manage your assets and disburse them to you or another designated beneficiary. The person with the authority to dispense assets from the trust is called the trustee.
Last Will and Testament
In contrast, a will is a legally enforceable document that provides directives regarding how your assets should be distributed upon your death. While your will outlines the allocation of your assets when your estate undergoes probate court proceedings, the final decision on will-related matters during the probate process usually rests with the probate court.
Here are some more details about the differences between wills and trusts.
Benefits of a Trust
You can set up a trust now or write a provision in your will that establishes a trust after you die. These are some reasons why people choose to set up trusts:
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Reducing your estate’s tax burden
- Avoiding probate entirely, or making probate much faster and simpler and less costly fees related to probate
- Enabling beneficiaries to receive part of their inheritance early, or giving more specific instructions about inheritance than you can give in a will
- Designating someone to manage money dispensed for the benefit of minor beneficiaries
- Protecting your assets from creditor claims
- Keeping your financial matters private
Types of Trusts
The procedures for setting up a trust vary somewhat, according to the details of what you want the trust to accomplish. You will need to follow the federal and state laws pertaining to the type
of trust you are establishing. These are the most common types of trusts that people set up in the course of estate planning:
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Revocable trust
This trust goes into effect during your lifetime, so it is also known as a living trust. You can also amend its terms or revoke the trust at any time. It is possible to serve as a trustee of your revocable trust.
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Irrevocable trust
This trust takes on a life of its own as soon as it goes into effect. Alterations or revocations are typically not permitted; however, in exceptional circumstances, modifications may be considered.
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Special needs trust
You have the option to establish this type of trust for an individual receiving government benefits like Social Security disability. The aim is to enable the beneficiary to possess property and assets while maintaining eligibility for government benefits.
Benefits of a Will
The purpose of a will is to indicate the beneficiaries of specific assets of yours or shares of your entire estate. The will also specifies a person who will act as the personal representative of your estate in probate court.
Even though you can download will templates online, every will is unique. There is no standard format that is appropriate for all wills. Depending on how much property you own and how complicated it is to transfer ownership of it, your will could be one page or hundreds of pages.
These are the elements you should include in your will:
Benefits of a Will
The purpose of a will is to indicate the beneficiaries of specific assets of yours or shares of your entire estate. The will also specifies a person who will act as the personal representative of your estate in probate court.
Even though you can download will templates online, every will is unique. There is no standard format that is appropriate for all wills. Depending on how much property you own and how complicated it is to transfer ownership of it, your will could be one page or hundreds of pages.
These are the elements you should include in your will:
- Assets such as money, real estate, and personal property
- The personal representative of your estate
- Beneficiaries of your will
- Guardians for minor children, if your children are minors
- Instructions on how to transfer the assets to the beneficiaries
Your will only becomes legally valid after two witnesses sign it. The witnesses must be at least 18 years old, and they must not be beneficiaries of the will. Keep your will in a safe place, and let the personal representative know where to find it.
Overview of Wills, Revocable Trusts, and Irrevocable Trusts
Wills:
- Legal document that outlines the distribution of assets after an individual's death
- Allows for the appointment of guardians for minor children.
- Must go through probate, a court-supervised process of authenticating a will and distributing assets.
- Can be revoked or altered during the testator's lifetime.
- Becomes effective only after the testator's death.
Revocable Trusts:
- A flexible legal arrangement that allows the grantor to modify or revoke the trust during their lifetime.
- Assets are transferred to the trust and managed by the trustee for the grantor's benefit.
- Avoids probate, allowing for privacy and potential cost savings.
- Provides incapacity planning as the successor trustee can take over management if the grantor becomes incapacitated.
- Becomes irrevocable upon the grantor's death.
Irrevocable Trusts:
- A permanent legal arrangement that cannot be altered or revoked after its creation.
- Assets are no longer owned by the grantor but are held by the trust for the beneficiaries.
- Provides asset protection, as the assets are no longer considered part of the grantor's estate.
- May offer tax benefits and protection from creditors.
- Can be used for Medicaid planning and minimizing estate tax burdens.
Why You Should Hire a Will and Trust Attorney
Wills and trusts affect the future of your finances and your family. Therefore, you should hire a lawyer to draft them and guide you through the other legal procedures related to them. Likewise, stating your wishes in writing to your lawyer will remove any doubt among your relatives about what you really would have wanted.
Your chances of success with setting up a trust are much greater if you hire a lawyer. These are some common mistakes made by people who set up trusts without professional legal representation:
- Choosing an unsuitable person as a trustee
- Not updating the trust when a change in circumstances requires it
- Not funding the trust properly
- Failure to execute other documents related to the trust, such as HIPAA authorization or power of attorney
Work With an Experienced Estate Planning Attorney
Estate planning documents such as wills and trusts can give you and your family peace of mind. Contact Era Law, Inc. in Burbank, California to make informed decisions about wills, trusts, and the rest of your estate plan.
