Understanding the difference between a will and a living trust will help you plan for your family’s future. To help you choose between these two estate planning options, start by evaluating the following:
- Value of your assets
- Size of your assets
- Current financial obligations
- Future financial needs
- Your health
- Family Obligations
What is a Will?
A will is an important document that allows you to decide how to distribute your assets after your death. It itemizes your belongings and names specific individuals or entities as the beneficiaries. The person you assign to be your will’s executor carries out your instructions. Without a will, the state determines and manages the distribution of your assets.
Instructions in a will can be very detailed. For instance, your nephew may receive a particular item if he marries within a specified period. If he does not fulfill this requirement, the item in question goes to your niece.
Wills are essential if you have dependent children because they allow you to choose their guardians. Without a will, orphaned children can potentially become wards of the state.
Wills must go through probate, the legal process of settling them in court. Probate is a matter of public record and can be costly and time-consuming.
What is a Living Trust?
Living trusts name an individual or entity to oversee its assets on behalf of a designated beneficiary, including the trust owner. Trust can be revocable or irrevocable, and the distribution of their assets does not require probate.
A revocable trust can earn interest for which you must pay taxes. However, this type of trust gives you the flexibility to make changes at any time. It can even cover your medical expenses if you become incapacitated. An irrevocable trust avoids tax obligations, but you must surrender all rights to your assets to a beneficiary.
Do You Need Both?
Although many people choose between a will and a trust, it often makes sense to have both, especially if you have young children. Although a will lets you designate your children’s guardians, unlike a trust, it will not allow you to decide when your children receive certain assets.
A will accounts for any property that doesn’t make it into a trust. Supplementing your trust with a will gives you the most control over all your assets.