How Do a Will and a Trust Differ?

Ask any financial advisor and they will tell you the same thing. It is critically important for adults to have a will or a trust in place. This is different than the often-held opinion that only the wealthy need to worry about estate planning. A good rule of thumb is that even young single individuals should set up a will or trust that designates where their property would go in the event of their untimely death. Without a will or a trust, the courts would be left to decide on the distribution of your property – a process which could take years.

Understanding Wills

As stated above, every adult should have a will. This legal document serves more than one purpose. Some of these include:

  • Explain planned distribution of property
  • Naming an executor for your estate
  • Identifying guardians for children under the age of 18

Though some individuals fear that a will is set-in-stone, it can actually be changed, revoked or amended at any time. Typically, an old will is revoked and a new will with the changes in place is reinstated in its place. A will does not go into effect until after your death and is subject to probate, or a period of time when a court is making sure that the will is valid and your provisions are followed correctly. This probate process can take a few months or more than a year, depending on what state the will is made in and the types of assets that are listed.

Understanding Trusts

Though equally important, a trust is very different than a will. One of the largest differences is that a trust goes into effect as soon as it is created. Here are some of the things that a trust can do:

  • Explain planned distribution of property
  • Customize how your estate is distributed
  • Protect certain property from state tax when a 2nd spouse passes away
  • Protect property and assets from a surviving spouse’s creditors
  • Select a power of attorney who can make legal decisions and financial decisions should you become incapable.
  • Nominate a person who should make health-related decisions for you should you become incapacitated.

A trust can also be changed when it is necessary, though a trust that is made with your spouse will need both of your signatures in order to make changes. Should one spouse outlive the other, the remaining spouse would then be able to make changes to the parts of the trust that have to do with his or her property, but they cannot change what happens with the deceased spouse’s property. Because a trust is an entity that holds property, changing it is done differently than making changes to a will. Instead of revoking and writing another one, a new trust document is “restated”, meaning amended but kept in place.

Understanding a Living Will

A living will is a document that can be set up in addition to a will or a trust. It is meant to give direction to doctors or medical personnel about the type of end-of-life medical care that you would, or would not prefer to have. This type of document puts provisions into place for the following:

  • Giving permission for palliative care which would lessen your pain and suffering.
  • Giving or revoking permission for medical personnel to use extraordinary measures to keep you alive.
  • Selecting a person to make medical decisions for you.
  • Giving or revoking permission for your health care agent to donate your organs or agree to an autopsy.

Though they are very different documents, wills and trusts are both important in estate planning. Qualified estate planning financial advisors can help you know what would be the most beneficial while planning for your future.

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