It can be difficult to think ahead to a time when we won’t be with our friends and family. While it’s important to have an estate plan in place, 67% of people don’t have a will or trust. This large group of people is leaving what happens to their assets in the event of death to others, including the state they live in.
Many people don’t have an estate plan yet because they haven’t gotten around to it. Others don’t have one because they don’t understand the process, including the difference between a will and a trust.
Both a will and a trust are essential to ensuring you and your loved ones get protected and provided for. Each document has major differences. This guide will discuss what you need to know about trusts and wills.
What’s the Main Difference Between a Will and a Trust?
The main difference between a trust and a will is when they go into effect. A person’s will takes effect once they pass away. A living trust immediately comes into effect after it’s created.
The creator of a trust can control it while they’re still alive. They’ll lose control of it if:
- They die
- Become incapacitated
- Can’t make healthcare/financial decisions
If any of the above factors come into play, the trustee of their trust takes over. Let’s go into more detail about wills and trusts.
What’s a Will?
A will is a legally enforceable document. It dictates how you want your assets to get distributed to your beneficiaries after you die.
There are three main kinds of wills. They include:
- Simple Will: A document you write yourself or with the help of an estate planning lawyer
- Testamentary Trust Will: Your assets go into a trust after you die
- Joint Will: A will that covers multiple people, such as spouses
Some people lay out their cremation, burial, or funeral wishes in their will. It’s recommended that you don’t do that because your will might not be reviewed until after you’ve been buried. You should leave your wishes for your final arrangements in another legal document, like a health care directive.
No matter what type of will you do, there are a few key elements that are found in each kind.
Name of Executor
You’ll name an executor of your will, usually a trusted family member or friend. The executor oversees the payment of your outstanding debts after you’ve passed. They’ll also watch over your asset distribution.
List of Beneficiaries
Your beneficiaries are those who’ll receive your assets. Your assets can include:
- Retirement accounts
A beneficiary can be anyone, such as a charity, children, or spouse.
If you have minor children, you can include who you want to get named their guardian after you die. You must get the guardian’s approval before putting them in your will.
Once a person is done writing a will, they’ll file it with the probate court. The court will keep a copy of your will until you pass away. If you don’t file your will with the court, your executor will need to once you pass away.
A probate judge will evaluate your will. They’ll do the following:
- Verify that it’s authentic
- Ensure that your debts are paid
- Oversee the distribution of your assets
- Authorizes the appointment of guardians and executors
Your will remains private until you pass away. Once you’ve died, your will and probate court documents will become public.
This process can take up to a year to complete. If your will is complicated and has high-value assets, it might take longer.
If you pass away and don’t have a will, a judge will usually give your spouse or children your assets. Since your wishes weren’t in writing, what happens to your assets might not reflect what you wanted.
What’s a Trust?
A trust is a legal arrangement that transfers your assets to a trustee. It sets the terms for how the trustee manages and distributes your assets.
Trusts can include more details than wills. There can be instructions on how various assets should be distributed to different people at specific times. A trust can also dictate how a beneficiary uses an asset or money when they receive it.
There are a few types of trusts that people can choose from.
A person can create a revocable trust which can be altered, amended, or terminated at any time during their lifetime. The creator of the trust can also be its trustee. They continue to be the owner of the assets in the trust for tax purposes.
The trust document can name who the successor trustee is. This person takes control of the trust when the trust creator dies or becomes incapacitated. Instructions for the transfer and management of the assets will be included in the trust document.
Another difference between a trust and a will is that the assets don’t have to go through probate court. Your assets will get transferred to your beneficiaries without having to go through the long court process.
An irrevocable trust takes away the ownership rights of the trust creator. The assets get transferred to an irrevocable trust. The trust creator can’t alter or change the trust.
The assets get managed by a trustee that’s not the trust creator. Any income generated by the assets isn’t included in the creator’s taxable income.
If an irrevocable trust is structured properly, the assets in the trust might get protected from creditors.
Partner With an Experienced Estate Planning Lawyer
While the difference between a will and a trust might seem straightforward, it can be a complicated process. It’s important to prepare yourself and your family for a time when you’re not around. You want your loved ones to have financial stability and not have to worry when you pass away.
At Cook & Tolley, our goal is to make the will and trust planning easy and stress-free. Contact our office to schedule a consultation with one of our attorneys.
Cook & Tolley, LLP
304 E Washington St Athens, GA 30601