Wills vs. Trust

By David Ingram

Wills and trusts are tools used to ensure your assets are distributed according to your wishes after your passing or in the event that you become incapable of managing your affairs. Although they serve a similar purpose, wills and trusts are very different options, each granting a unique set of advantages. In general, wills are less expensive and better suited to smaller estates, while trusts are ideal for large estates with numerous types of assets.

Wills and trusts are tools used to ensure your assets are distributed according to your wishes after your passing or in the event that you become incapable of managing your affairs. Although they serve a similar purpose, wills and trusts are very different options, each granting a unique set of advantages. In general, wills are less expensive and better suited to smaller estates, while trusts are ideal for large estates with numerous types of assets.

Wills

A will is essentially a set of instructions for the distribution of your assets after your passing. Living wills can stipulate exactly where things such as real estate, bank accounts, vehicles and jewelry end up. Individuals have the right to specify any disposition of their assets that they desire, so long as the writer was in a sound state of mind at the time of writing. Although wills specify which assets go where, these documents can still be subject to probate courts' apportionment of assets to pay off creditors and other obligations.

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Trusts

Rather than basing asset distribution on written instructions, trusts place assets in the hands of an active trust manager. This individual is tasked with personally making decisions regarding the assets on deposit according to the general wishes of the funder of the trust. Trust managers can distribute any assets that have been funded to the trust in the event of incapacitation or death of the depositor in any way.

Will Advantages

Wills can be much less expensive to create than trust accounts, since wills require only a formal document rather than active management. Living wills can be made without professional assistance in many instances, making them ideal for smaller estates and individuals with simple asset distribution wishes and no large outstanding debts or obligations.

Trust Advantages

One of the largest advantages of trusts is that they do not go through the probate process. This allows your assets to stay out of the hands of the court, instead relying on a trusted individual to carry out your wishes for your property. Trust distributions can also be set for specific future periods, such as when a child turns 21 or gets married. Trust managers can also be instructed to invest trust funds rather than distributing the funds, allowing family members to receive interest and capital gains over a long term rather than a lump-sum all at once.

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What Items Should Be Put Into a Living Trust?

References

Related articles

Can You Transfer Debt Into a Living Trust?

A living trust is an agreement in which you transfer your assets into the ownership of the trust. You can retain control of those assets by naming yourself as trustee until your death, at which time a successor trustee takes over and distributes your assets to your beneficiaries. While you cannot transfer debt into a living trust, creditors might be able to reach the assets in the trust during your lifetime and after your death.

What Are the Duties of a Successor Trustee for Administrating a Living Trust?

A successor trustee does not have any duties until the trustee can no longer perform his duties. A trustee is a person responsible for managing the affairs of a trust and distributing assets. There are two types of trusts: revocable and irrevocable. With a revocable trust, the person who created the trust, known as the grantor, retains control of the trust and can modify or terminate the trust at any time. The grantor typically is the trustee of a revocable trust. In contrast, the grantor cannot be the trustee of an irrevocable trust, which cannot be modified or terminated by the grantor without permission from all the beneficiaries.

How to Use a Trust for Asset Protection

As with other testamentary instruments, such as a will, trusts give clear directions on how to distribute property upon the happening of a specified event, for example, death. Trusts can also protect assets from creditors, depending on the type of trust you use. This occurs because property held in a trust is considered property of the trust. In other words, once you place property in the trust it is no longer yours; it belongs to the trust. Some limitations exist, however. For example, few states allow trusts for the sole purpose of asset protection. A basic understanding of trusts can help you determine the best type of trust to use in order to protect your assets.

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