A will and a trust both offer protection for your assets and the ability to dictate how you want them to be distributed after your death. However, they have a few distinct differences that you should be aware of.
Wills communicate who you want to inherit your property and what specific instructions you would like to leave behind. They also allow you to name a guardian for any minor children and specify funeral arrangements.
However, a will must go through probate, which can be time-consuming and costly. Trusts, on the other hand, can bypass probate entirely and provide a more streamlined way of managing your assets.
When you create a trust, you become known as the “settlor.” You then give control of your property to another person (known as the trustee) for the benefit of a third party (known as the beneficiary). You can transfer assets into a Trust either on death or during your lifetime. If you choose to transfer assets into a Trust during your lifetime, these gifts are considered “gifts without reservation” for inheritance tax purposes and can be taken out of the estate after seven years.
In addition, you can set up a Trust with different types of beneficiaries. This includes your spouse, children, grandchildren, friends or other loved ones. You can also specify who should manage the Trust, and you can appoint successor trustees in the event that the original trustee is unable to fulfill their duties.
You also have the option to stagger your trust distributions, meaning that you can choose to distribute some of the trust’s assets over a period of time instead of giving them all to your beneficiaries at once. This can be helpful in reducing the risk of bad financial decisions by your beneficiaries that could quickly deplete your estate.
A trust can also be used to save on taxes. For instance, if you hold property in the name of your company, it is considered a personal trust. This means that the value of your company’s assets can be deducted from your taxable estate when you die, providing substantial savings for your family and your heirs.
Another advantage of a trust is that it can help you avoid legal battles and disputes over your estate. This is because a will only goes through probate and is open to public record, while a trust goes through a much more streamlined process that is private. This can prevent heirs from arguing over your wishes and may even reduce the need for expensive litigation. It is important to note, however, that you should consult with your legal, investment and tax advisors before creating any type of trust. They can help you decide which is best for your unique circumstances.
