The main function of most estate plans is to address what happens after an individual dies. Testamentary documents allow someone who is still alive and healthy to decide what should happen in the future when their circumstances change.
Most people choose between a will or a trust when deciding how to pass their property on to the next generation. Some people even use both a will and a trust. For those preparing for estate planning, an understanding of the differences between wills and trusts is necessary to make the right choice.
When assets transfer ownership
One of the most significant differences between a will and a trust involves when the testator rescinds direct ownership of an asset. With a will, an individual plans to have someone else assume ownership after they die. When using assets to fund a trust, transferring the ownership interest to the trust immediately is often what occurs. Those differences continue during estate administration. When someone uses a will, assets transfer directly to a beneficiary and are under their complete control at the end of the estate administration process. Assets held in a trust may be subject to certain restrictions and limitations.
How long they remain in effect
As previously noted, a will essentially takes effect after someone’s death and becomes powerless again after the completion of estate administration. A trust can take effect immediately upon the creation of the trust and can persist indefinitely for as long as there are still assets for the trust to manage and distribute.
What benefits testators derive
The benefits of a will are straightforward. Someone who has planned ahead for their long-term legacy may feel a sense of peace of mind. That may be doubly true for parents who use their wills to designate guardians to care for their children. A will makes someone’s wishes clear and can help prevent their loved ones from fighting.
Trusts can achieve many of the same goals while offering additional benefits. A trust can give someone more control over how their beneficiaries use an inheritance. It can help deter fighting among beneficiaries. Trusts can help preserve assets from creditor claims and limit estate tax liability. Trusts can also keep assets out of probate court, which can provide a degree of confidentiality.
A trust is a legal instrument capable of owning and investing property. A will is a document outlining what should happen to certain property when the owner dies. Choosing the right estate planning tools can help someone protect themselves and their loved ones in an unpredictable world. Both wills and trust can be useful in an assortment of different circumstances.