“Will or Trust?” Mr. Johnson pondered for the umpteenth time. Something was bothering him. The issue had to with his impending retirement. Time was of the essence in planning for his family’s future
Now he hadn’t done too badly for himself. While he didn’t consider himself as “very rich,” yet he had built several thriving business and acquired several choice property over the years.
There was more than enough to provide for his wife and their five children. But his lawyers advised him to plan towards the distribution of his estate on his demise. Especially to avoid future squabbles over his assets. And thus was his dilemma – should he go for a will or trust?
Since time, many adults plan for their children to have a better future than they did. Every parent wishes to fulfill their child’s dreams of a perfect future whatever it may be.
This is why it’s common for parents to ensure that their children are set-up financially. Some do this by amassing fortunes and passing it on to their children in a will. While others prefer to establish a TRUST to manage their wealth..
A will is a document that gives direction on who gets what from your property upon your death. It also specifies a legal representative to carry out your directives.
A Trust, on the other hand, is a fiduciary relationship in form of a legal arrangement. An individual (or institution, such as a law firm), called a ‘trustee’ holds legal title to property for another person, called a ‘beneficiary’.
Both wills and trusts work just fine. Nonetheless, here are the differences to help you decide which is best to secure your family’s future:
Time of Effect
The principal difference between a will or trust is that the former goes into effect only in the event of a person’s death. In the case of a trust it takes effect immediately you set it up. A trust can be used to begin distribution of property before death, at death, or afterwards.
Legal Costs of a will or trust
A will is less expensive to prepare than setting up a trust. But, the cost of administering a will is quite substantial. This means that in the long run a will is far more costly.
A will covers only the property that is in your name when you die. It does not cover property owned jointly with a spouse or a business partner. A trust, on the other hand, covers only property that has been transferred to the trustee. In order for property to be included in a trust, it must be put in the name of the trustee.
Another distinction worth considering between a will and a trust is that wills are put under probate (a legal process of verifying the legality of a will). The courts oversee the administration of the will and make sure that the property is distributed as directed by the deceased.
A trust passes outside of probate, so a court does not need to oversee the process. This also saves a lot of time and money.
A Will goes through the courts and becomes part of public records. Thus information about a person’s death, beneficiaries and assets can be made public. Trusts however remain private. No one other than the beneficiaries, trustee, attorney, and accountants will know the contents of the deceased’s trust. There are no legal filing requirements.
Should Mr. Johnson decide to have a will written he must name an executor. He/she will communicate with the court, settle outstanding bills, and, eventually, distribute any property that goes through probate.
This is not possible in a living trust. Managing the property left through the trust requires the naming of a trustee. Most estates usually need an executor to some extent, so it makes sense to make a will and name one. More so when you leave most of your property through a trust. In many cases it makes sense to name the same person for both roles.
Some go for wills because they’re allowed to name a guardian for children and even to specify funeral arrangements. Planning for disability or to provide savings on taxes are possible with a trust.
Trusts continue to hold property for the benefit of certain beneficiaries after the grantor’s death, such as young children. They cannot legally take ownership of their own property until they reach a certain age.
A will does nothing to plan for mental disability because it doesn’t go into effect until an individual dies. The family would have to approach the court to ask that a conservator or guardian be appointed to handle their affairs if they were to become mentally unfit before that time. This can be both costly and stressful.
In contrast a revocable living trust can make provisions for disability. The successor trustee the grantor has named is someone of his choosing, not the court’s. That person takes over if he becomes incapacitated and unable to manage his own affairs.
Mr. Johnson can now relax. He can choose which suits him. Furthermore he now understands that if he goes with a will he must name an executor that will organize his affairs. Alternatively trustees will run the trust whenever it is set up if trusts are his preference.
It’s also important to note that most people need a will, but not everyone needs a living trust. Setting up a living trust depends on your age, how wealthy you are, and your marital status.
Finally, even if you decide that you need a living trust, make a will in which you name an executor. And take care of any property that doesn’t end up in your trust. It is all in the optics of wealth preservation and managing finances.
Your family’s financial future is so important. You must ensure not to leave it to chance.