Although people often confuse the terms will and trust, they are in reality very different legal documents. Let us work together to select the instrument that best suits your needs.
What is a Will?
A will is a legal document that that specifies who will receive your assets and act as guardians for any dependent children in the event that you pass away. Without a will a judge will make these decisions, which may not necessarily be in accord with what you would wish.
There are many types of wills:
Simple Wills: distributes property from the estate of a person whose finances are uncomplicated to those delegated or assigned in their will. This type of will usually indicates:
- Which assets are to assigned to each of the beneficiaries
- Who will serve as the executor for the estate
- Who will act as a guardian for the persons minor children
- The names of those that serve as witness to the validity of the document
Testamentary Trust Wills: is a type of will that places part of your property into a trust. The trust distributes your assets to your designated beneficiary, but it is administered by a third person who controls when and how your assets are distributed to the beneficiary. This type of document is useful when you do not want to give a lump sum amount or property to a beneficiary, but would rather that the assets be provided to them over a period of time.
Joint Wills: is created by two people who leave their property to each other, in other words, in the event one of them passes away, the entire property automatically belongs to the second person. A Joint Will can also specify how an estate will be distributed when the second, or both, persons that are part of the will pass away.
Living Wills: unlike other types of wills, a living will does not distribute property, instead it provides instructions on what type of medical treatment you wish to receive if you become too ill to communicate. This document will speak for you in the event you are too ill to express the level of care you want to obtain.
You have to be careful and ensure that you picked the instrument that best protects your interests.
What is a Trust?
A living trust is a legal device that can be used to manage your property during your lifetime and to distribute your property after your death. A revocable living trust is established by a written agreement or declaration, which appoints a “trustee” to administer the property transferred to the trust, and which gives detailed instructions on how the property is to be managed and eventually distributed. While this arrangement may seem simple, disagreements between beneficiaries and trustees can make the process difficult, so you have to be especially careful to ensure that all areas of your trust are delineated and covered to avoid these issues.
A will only goes into effect only after you pass, while a trust goes into effect as soon as you create it.
Just like wills, there are many different types of trusts. The two most common trusts types are:
- Revocable trust: is a trust type that allows you to retain control of all the assets in the trust and you are free to revoke or change the terms of the trust at any time. You have full control to remove and designate new beneficiaries, modify stipulations as to how assets within the trust are managed, and change who manages the trust throughout the life of the trust.
- Irrevocable Trusts: the assets in it are no longer yours, and the terms set in the trust are set in stone from the minute the agreement is signed. Except under very rare circumstances, no changes may be made to an irrevocable trust without consent from each the trusts beneficiary's. The advantage of this type of trust though is that assets that appreciated during the life of the trust are not subject to estate taxes.
There are many other trust types but they are very specific and specialized instruments that do not serve the majority of people. Some of them are: Credit Shelter Trust, Generation Skipping Trust, Qualified Personal Residence Trust, Irrevocable Life Insurance Trusts, etc.
Not knowing the differences between each document type can have a significant impact in your future and those that stay behind. Call us and make an appointment so we can help you navigate what instrument will work best for you and your family.