The Difference Between a Will and a Trust


Estate Planning, Financial Planning, Financial Security, Trust, Will


August 15, 2019

When it comes to protecting your loved ones, having both a will and a trust is essential.

 

The difference between a will and a trust is when they kick into action.

 

A will lays out your wishes for after you die.

 

A living revocable trust becomes effective immediately. While you are alive you can be in full charge of your trust. And when you become incapacitated or die, the person you appoint as the successor trustee can easily step in and handle your affairs exactly as you have laid out in the document.

 

It is my strong opinion that you should have both a will and a living revocable trust.

 

Why you need a trust

 

There are many types of trusts. A living revocable trust is the right trust for the vast majority of you.

 

Let’s take this word by word:

 

Living: A trust is effective during your lifetime.

 

Revocable: Everything you state in the trust can be changed. At any time. That’s what revocable means. So relax. This is a legal document that you can change as your life changes.

 

Trust: Once you create a trust you can move the ownership of key assets –such as a home and other property – into the trust and appoint yourself as the trustee, meaning you call all the shots on how to use and manage those assets while you are alive. You also appoint someone to be your successor trustee. If you become incapacitated, the successor trustee can step in easily and manage your affairs. Or, when you die, the successor trustee takes over without the need to get any court approval.

 

It is important to understand that if you only have a will, when you die your family may have to go through a lengthy court process to have the right to follow what you laid out in your will. This is called probate. In addition to being time-consuming and costly (you likely will need to hire a lawyer) it is also public. When you die with only a will, that document must be filed with the court, and can be accessed by anyone.

 

Smaller estates may be able to avoid probate if the deceased only had a will; but in most states, the cut off for what amount qualifies for a “simplified” probate is low. (You can learn more about your state’s simplified probate rules.)

 

The surest way to avoid probate is to have a trust. A living revocable trust does not need court approval. Everything stays private, and your successor trustee can take over its management immediately upon your death.

 

Why you need a will

 

As important as a trust is, you also want to have a will.

 

While your big-ticket assets, such as a home, should be owned by your trust, you likely have other smaller keepsakes –a china collection, watches etc.. – that you want to give to a specific person. A will is where you spell this out.

 

A will is also where you can write down your funeral wishes.

 

If you have young children you must, must, must have a will. A will is where you appoint a guardian for minor children. I realize thinking about this can be upsetting, but let’s talk about something even more upsetting: if you die without a will that establishes your children’s’ guardians, decisions about the care of your kids are going to fall to the court system.  That’s what happens when parents die without a legal guardian ready to step in. Sure, a sibling or cousin or dear friend might end up as the guardian, but only after a draining court process, and potentially ongoing court oversight.

 

You love your family more than anything, right? Having both a will and a trust is a powerful way you show your love. It will save your family time and money. And the heartache of squabbles if you were to die and not leave clear instructions on who is to get what.

 

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