What Is the Difference Between Trust And Will?

Attorney Real Estate Group is here to help you decide on the best path to take regarding Estate Planning. There are many options, but deciding the right one can be overwhelming.

Our Estate Planning team strives to provide the best advice for as many individuals and families as possible based on their current circumstances. We’ll cover everything you need to know about Estate Planning’s, from subtle nuances to significant differences.

You can help your loved ones in need by planning for your future and making these important decisions now. Find out what the differences between a Will and a Trust are below.

 

What Is The Purpose Of A Will?

The purpose of a will is to determine who inherits your property after your death, and it only takes effect when you are deceased. Trusts are similar documents, but they are used to avoid probate through the courts, making the process easier for your beneficiaries and those responsible for managing your estate. Because both documents have different benefits and effects on your estate plan, it is crucial to understand their differences.

Using a will over a trust is more convenient because it is easier to draft while alive, but you still have control over who will inherit your property. With both a will and a trust, you can decide who to leave assets to, how to distribute them, and who they should go to. A will can be a much simpler process than establishing a trust and, therefore, less expensive.

 

Allows you to designate individuals

Additionally, a will allows you to designate individuals responsible for managing specific aspects of your estate. Whether you create a will or not, state law determines who will inherit your estate based on the rules governing intestate succession. In the absence of a will or trust, the state determines who should inherit your assets according to their relationship with you – one of the reasons many people establish a will or trust to protect their assets.

In contrast, it is a legal instrument with advantages over wills in preserving wealth. When assets are automatically transferred into qualified beneficiaries’ names upon death by trusts, they do not require a court order – something a Will would entail if no trust were in place.

Additionally, trusts can offer greater certainty regarding how assets will be handled and used during and after a person’s lifetime. By establishing a trust, the settlor (creator of the trust) can plan how to manage their assets if they cannot.

Making informed decisions about your estate planning goals and needs begins with understanding the differences.

 

How Does Creating a Will Benefit You?

In a will, you tell your final wishes about your possessions and estate when you die. It is a legal document in which you decide how to pass the property on to your family and friends. This is not mandatory but gives you the option rather than leaving that decision up to state law.

It is common to have an attorney help you create a will. You can modify or revoke a will anytime, but it is legally binding at your death. It is beneficial to have a will for several reasons:

• As you plan for your estate, you can specify who will receive what property and how it should distribute among your loved ones;
• A well-drafted Will keeps your assets protected from challenges and family fights, allowing what you write in your will to stand regardless of your family’s disagreements;
• If you wish to change or revoke your will during your lifetime, this is easy to do;
• Making a Will will likely save long-term money by reducing court and attorney fees associated with probate proceedings.

A disadvantage to wills is that they must register with the probate court (the county court that handles estates), which adds time to the process and costs. When a will goes for probate, it becomes a public record, which can cause privacy issues or embarrassment for beneficiaries and anyone else left out.

 

Is Trust Often Used For Estate Planning Purposes?

It is a legal document specifying how someone’s assets will be distributed after death, specifically a revocable living trust. A trust is often used for estate planning purposes because it allows for greater discretion in how assets will pass, and if properly funded, it can save you from the probate court.

In cases where you have a large or complicated estate or wish to be more in control of how your assets are distributed, creating a trust is a worthwhile step. It is possible to gain from trusts, even when you have less of an estate. If you want to alleviate the burden of your loved family members and allow them to take charge of your assets.

A trust can provide several benefits, including:

• It is possible to avoid the probate process by having a trust, making it easier for your beneficiaries and those left in charge of your affairs;
• When you pass away, you can leave your assets over time to beneficiaries rather than all at once;
• The use of trusts can help children or adults with special needs receive assets and care without impacting any existing or future government benefits; and
• You can use trusts to protect assets from creditors and third parties after you pass away.

 

Can You Explain The Different Types Of Trust?

 

Bare trusts

Among the simplest forms of trust are those that give the beneficiary immediate access to capital and income of an asset. It is common for trusts to exist for young people under the age of 18. The trustees can ensure that funds are used responsibly (e.g., to pay for education) and will be legally responsible for the assets.

 

Life interest trusts

During their lifetimes, individuals can use and benefit from assets under a life interest trust without being able to sell them. Survivor spouses can continue living in the family home but cannot sell it and transfer the proceeds to a new partner. This could be an effective way to protect children’s inheritances.

A couple may also own 50 percent of a property each. If the husband dies and leaves his half in a trust, the local authority could not claim the half to pay for any future care costs the wife might incur but could give it to their children and grandchildren.

 

Discretionary trust

As a result, trustees have the maximum flexibility regarding how they use the asset’s capital and income. By doing so, the trustees can adapt to changing circumstances and ensure that funds go to areas that need them the most.

It is possible to set up a trust to support three children. As the children grow up, a particular sibling may need more support due to illness or redundancy. The trustees could use a discretionary trust to provide that extra support.

It is essential to choose trustees carefully since their decisions can significantly impact the future lives of trust beneficiaries. Trustees have no legal obligation to follow the Letter of Wishes, although many people provide one when setting up a discretionary trust.

 

Are There Any Significant Differences Between Them?

When someone sets up a Trust, they can do so while the person is alive or after their passing, whereas when a person dies, it takes effect. You might choose one of the beneficiaries of your will to be a trust rather than passing assets to individual beneficiaries, and a Will names an executor to take care of your affairs upon your death. Beneficiaries hold property in trust for Trustees, and Trustees have the authority to distribute assets before and after their death.

 

 

During your lifetime, gifts made to trust qualify as gifts for inheritance tax purposes, and after seven years, they are no longer part of your estate. To be effective, you must not serve as a beneficiary of the trust. However, you may remain a member of the Trust Trustees to manage the trust’s assets.

You must go through probate after you pass away, whereas a trust won’t. It will save you time and money and keep your will’s details private (except when it complies with the Trust Registration Service, where you must provide them).

In contrast, will become part of public records and are therefore subject to legal challenge. Also, a Trust allows you to save taxes and can take account of disabilities and incapacitations before your death.

With a will, you can also specify your funeral wishes and a guardian for any dependent children.

 

The Similarities Between Trust and a Will

Wills and living trusts do not have any tax advantages. Your heirs will owe the same amount regardless of whether they have a will or a living trust. The state does not charge state inheritance taxes to spouses and children. But other family members may. In most cases, families will not have to pay federal death taxes since substantial exemptions exist.

 

The Benefits of Living Trusts over Wills

When you set up a trust for your estate, you appoint an individual to manage your assets while you are still alive. This will make it easier for your beneficiaries to receive your assets after you die. If you are mentally capable, you may appoint yourself, or a third party may do so.

Living trusts have the primary advantage of speeding up the distribution process for beneficiaries. Life trusts do not have to go through probate court to begin sooner.

 

Keeping Legal Challenges at Bay

Moreover, California requires attorneys to set up trusts, so heirs rarely challenge the trust declarations in court due to the requirement that lawyers set up trusts. Avoid legal challenges will save your estate legal costs and ensure your beneficiaries receive the total amount you left them.

 

Creating a trust

You and your attorney must follow a few steps when creating a living trust (a revocable living trust). Grantors are the people who own assets or estates; thus, they become the people who become trustees. An attorney writes up a trust document, but the grantor is you.

 

Trustees’ Rules

It would help if you appointed a trustee to play a vital role in managing the trust assets while the owner is alive. The trustee will be responsible for processing payments and investing the trust assets.

When managing trust in California, the Consumer Financial Protection Bureau (CFPB) outlines the laws and rules trustees must follow.

 

Benefits of Wills over Trusts

• It directs what happens to your estate and affairs after your death.
• You can use a will alone if you have a non-complex estate, as a will doesn’t require you to assign a trustee. It will generally cost less to create than living trusts.
• In your will, you can specify the funeral or memorial service you wish for.
• Trusts and wills may be necessary.
• There are some estate planning situations in which it is necessary to set up both a will and a living trust. A will can be very beneficial for ensuring the legal distribution of your estate.
• Those with minor children need to have both a will and a trust in place to ensure that the children’s legal guardian stands out and that they might receive their inheritance when they reach legal age.

 

The Living Trust May Override The Will.

An attorney will properly set up your living trust so they complement each other rather than override each other. Because the trust exists as a separate entity, if a legal situation arises during the planned distribution of the assets, the court will consider the wishes contained in the trust over the wishes contained in the will.

 

Which Is Better, a Will or a Trust?

There are many important factors to consider when deciding whether to have an estate plan, including a will or trust. Your assurance that your loved ones are in good care helps alleviate some of the sadness you feel when you have to say goodbye to your loved ones.

It will describe how to distribute your property after your death. Their choice depends on property type, age, and marriage status. Speaking with an attorney before creating a will or trust is essential. Your attorney can explain the benefits of both types of documents and suggest their best use.

 

Bottom Line

Attorney Real Estate Group can provide you with all the advice and information you need to understand the difference between a will and a trust. The first thing we do for our clients is to treat them like family. We will help you create an estate plan and efficiently distribute your assets to your heirs.