Having an estate plan is important to ensure the distribution of your assets according to your wishes.
There are two common ways to do this: a will or a trust.
What is a will?
According to CNBC, 67% percent of Americans do not have an estate plan. A will is a legal document that states a person’s wishes for their property after they die. It outlines who will receive their assets. A will can also name guardians for minor children and specify funeral arrangements. The person who writes the will, called the testator, appoints an executor to carry out the will’s instructions. After the testator’s death, the executor must go through a legal process called probate.
What is a trust?
A trust is a legal arrangement where a person, known as the grantor, places assets into a trust for the benefit of beneficiaries. The grantor appoints a trustee to manage the trust. Trusts can be either revocable or irrevocable. In a revocable trust, the grantor can change or cancel the trust at any time. In an irrevocable trust, the grantor cannot alter or revoke the trust once they have established it.
What are the differences between a will and a trust?
The difference between a will and a trust lies in their purpose and function. A will only takes effect after the testator’s death, while a trust can become effective immediately. Wills must go through probate, a public process that can be time-consuming and costly. Trusts, on the other hand, bypass probate, providing a faster and more private way to distribute assets.
How do you choose between a will or a trust?
Choosing between a will and a trust depends on individual circumstances and goals. Wills are typically simpler and less expensive to create, making them suitable for those with straightforward estates. Trusts offer more flexibility and control, making them ideal for those with complex estates or specific wishes for asset management and distribution. Trusts can also potentially reduce estate taxes.
When choosing an estate plan, consider your unique situation to decide between a will or a trust.
