A will and a trust are two important things that decide about the fate of your property and assets while you are alive and after you are dead. But most people aren’t sure about their differences and what significance they hold.
Getting a will or a trust or both created with all sound mindedness during a lifetime can relieve a person of many avoidable worries and fears.
Both things play a pivotal role in deciding who bequeaths your wealth and property, upon your death or becoming unable to mindfully handle your affairs.
Surely, you do not want your legal heirs or any other person to be involved in tough and lengthy legal battles to claim entitlement of their right to bequeath your wealth and estate.
Neither would you like your spouse and/or minor children to suffer in any way should you become unavailable to care for them, despite having vast fortunes.
Therefore, the most appropriate strategy to prevent the occurrence of any such event in your case is to create a will or set up a trust or both depending on the professional advice of your lawyer.
However, before you move on towards seeking a legal advice, you need to know the basic differences between the two.
This article covers everything that you should know about creating a will and/or setting up a trust to safeguard the interests of your loved ones.
What is a Will?
A ‘Will’ is a legally enforceable written document made by a person during his/her lifetime and which becomes active upon such person’s death.
Usually, a will contains the last wishes and instructions of the deceased person about himself and his wealth, fortunes, property and estate, investments, and other assets.
Examples of wishes expressed in a deceased person’s will can be about the place he/she wants to be buried, donating any organ of their body to some patient in need, etc.
But in most cases, a will usually state the bequeathing of the deceased person’s wealth, property, and other assets left behind to his/her spouse, children, friends, relatives, etc.
Types of will
There are four main types of will. They are –
- Simple Will
- Testamentary Trust Will
- Joint Will
- Living Will
Key elements of a will
A will document is valid when it has –
- A testator (whose age is 18 years or above, is sound minded, has the testamentary capacity, and free from any kind of influence that pressurizes him to sign the will involuntarily);
- A will statement (form of the will);
- Execution or been signed; and
The key importance of creating a will
A deceased person’s will holds much importance in many ways. It is the only document that could decide the manner of distribution and transfer of all the assets of a deceased person between his legal heirs, if any, and/or any other specifically named persons or entities.
In some cases, a will may also prescribe the transfer of assets of the deceased person towards the fulfillment of a purpose or a charitable organization, etc.
But in cases where a person dies intestate or without making a will, his/her loved ones and legal heirs could become deprived of their legal right to bequeath what is left behind.
In all such cases, the course of action related to what should be done with the property, and all other assets as well as the custody and care of the minor children of the deceased person, becomes dependent on the intestacy laws of the relevant state.
In the worst possible scenario, such cases could remain unresolved over long periods while costing vast amounts in legal fees, taxes, etc.
Therefore, it is always recommended that each person should decide the course of such events themselves by making a will that is professionally written and witnessed while they are alive.
What is a Trust?
Unlike a will, a ‘Trust’ is a fiduciary relationship in which the maker of the trust, known as ‘trustor’, assigns the responsibility and rights of handling and taking care of the property, objects, wealth, and other assets held in a trust, under the authority of another person, known as a ‘trustee’.
The trustee entrusted by the setting up of a trust has the power to exercise necessary rights and make decisions, which shall be deemed necessary for the benefit of a third party, known as a ‘beneficiary’.
It is important to mention here that a deceased person’s will may direct the setting up of trust after his death.
Types of trust
There are three main types of trust. These are –
- Revocable Trust
- Irrevocable Trust
- Testamentary Trust
Key elements of a trust
A trust should have the following key elements –
- An intent to create a trust;
- Specifies trust property;
- Designation of the parties to it (trustor, trustee, beneficiary);
- Purpose of the trust; and
The key importance of setting up a trust
Unlike a will, a trust becomes active from the moment it is set up, with an exception of a testamentary trust. Setting up a trust holds importance in many instances.
For example, by setting up a trust, your heirs would not have to pass your will through a probate court. Will matters under consideration of a probate court could take several months to resolve as well as cost considerable amounts of legal expenditures.
Another example highlighting the importance of a trust could be of the trustor setting up a trust, where the trustee can be a real estate management company looking after the rental property of the trustor. The expected income in the form of rental proceeds in this case could be directed towards the education expenditures of the beneficiaries.
Costs and fees involved in creating a will and setting up a trust
While the exact or average numbers in both cases can be hard to ascertain, the prime factors considered to calculate the fees are mentioned here. Therefore, the actual cost and fees charged by an attorney may vary in each case.
Hourly rate basis
An hourly rate means that your attorney will bill you for the amount of time that you consume in getting your matter resolved. Generally, the more experienced the attorney is or the larger the law firm is, the higher will be the rate per hour. An attorney might opt for an hourly rate when complex matters are involved.
Flat rate basis
A flat rate does not mean a flat or a fixed amount of fee, rather it is a percentage of the value of the property and assets involved. Such a percentage might be negotiable in some cases.
Although it is a rare sight, certain cases involving property and assets do have a contingent fee tied to them. For example, your attorney might bill you as a percentage of the outcome of the case if he makes you win.
As evident from the above discussion, a will and a trust are both tools to help sort matters related to your estate during your life and in the event of your death.
Not having anyone could put the rights and interests of your heirs at great risk and provoke lengthy legal proceedings with uncertain and unfavorable outcomes, which no one would want their loved ones to go through.
Therefore, consulting a legal advisor at your earliest to get a clearly written and witnessed will, or set up a trust is the best choice.