By far the most common question we get is about the difference between a will and a trust. Watch the answer below:
A will is a legal document that outlines how you want your assets distributed after your death. A trust, on the other hand, is a legal arrangement that allows a third party, known as a trustee, to hold assets on behalf of a beneficiary or beneficiaries.
The need for a will, a trust, or both depends on your personal circumstances and estate planning goals. These instruments serve different purposes and can be used individually or together to secure your estate and your loved ones' future.
If you die without a will or trust, your estate typically goes through probate, a public process that can be lengthy and costly. Probate can lead to your wealth eroding over time and leave your loved ones waiting for the distribution of your assets.
The person you appoint as your executor or trustee should be someone you trust and who is capable of managing your affairs. Consider their organizational skills, financial savvy, and ability to handle potentially complex tasks under pressure.
You can make changes to your will or trust as your circumstances change. This often involves revising, amending, or completely rewriting your will or trust document. It's recommended to review these documents regularly or when significant life events occur.
The tax implications of setting up a trust depend on the type of trust. Some trusts can provide tax benefits by removing assets from your estate, while others may be subject to separate tax rules. It's important to consult with a financial advisor or tax professional when setting up a trust.
A testamentary trust is a type of trust that is created upon the death of the individual who created the will. It is specified in the will and comes into effect only after the individual's death and the will has gone through probate.
Probate is a legal process that occurs after a person's death. It involves proving in court that a deceased person's will is valid, identifying and inventorying the deceased person's property, having the property appraised, paying debts and taxes, and distributing the remaining property as the will (or state law, if there's no will) directs.
Yes, both a will and a trust can be contested, although the circumstances and processes for each can vary. Grounds for contesting might include questions about the validity of the document, the mental capacity of the person who created the will or trust, or whether there was undue influence over the person when creating the document.
A probate court oversees the probate process and handles matters related to the administration of estates. This includes validating the will, appointing the executor, and settling disputes that might arise during probate.
Trusts, insurance policies, and certain types of ownership structures can help protect your assets from creditors or lawsuits. However, laws vary by jurisdiction, and what works best will depend on individual circumstances. Always consult with a professional for personalized advice.
Divorce can significantly impact the terms of your will or trust. In many jurisdictions, a divorce may automatically nullify any benefits that would have gone to the ex-spouse. However, it's important to revise your estate planning documents after a divorce to ensure that your assets will be distributed according to your new wishes.
It's generally recommended to review your will or trust every few years, or whenever significant life events occur, such as marriage, divorce, the birth of a child, the death of a beneficiary, or a significant change in financial circumstances.
A power of attorney is a legal document that gives someone else the authority to act on your behalf in certain circumstances. It can complement a will or a trust by covering situations where you might be alive but unable to act due to incapacity.
A living will, or advanced healthcare directive, is a document that outlines your wishes for medical treatment if you become unable to express informed consent. This can be an important part of an estate plan, covering health decisions whereas a will or trust typically covers property and asset distribution.
Setting up a trust for a minor or a person with special needs involves creating a trust document that names a trustee and outlines how and when the trustee should distribute the trust's assets to the beneficiary. Special considerations are often needed to ensure the trust does not interfere with the beneficiary's eligibility for certain public benefits.
The main difference between a revocable trust and an irrevocable trust is that a revocable trust can be changed or revoked by the grantor during their lifetime, while an irrevocable trust generally cannot be changed once it's established.
Funding a trust involves transferring ownership of your assets to the trust. This might include transferring titles of property or designating the trust as a beneficiary on insurance policies or retirement accounts.
Estate tax, often referred to as inheritance tax, is a tax on the transfer of the estate of a deceased person. The applicability of estate tax depends on the value of the estate and the tax laws in your specific jurisdiction.
When choosing a guardian for your children, consider factors like the potential guardian's age, health, lifestyle, beliefs, and willingness to take on the responsibility. Also, consider the existing relationship between the potential guardian and your children and how a change in guardianship might affect your children's lives.
