With very few exceptions, all individuals should create an estate plan sooner rather than later.
A common misconception that many people harbor is that an estate plan is only for the wealthy or those with significant assets. Due to this misconception, many people make the mistake of overlooking their assets simply because they think that they don't possess an estate.
The truth is just about everyone possesses an estate and needs an estate plan in the form of a will and/or trust. If you're in the process of creating an estate plan, here are some of the key differences between a will and a trust.
What Is a Will?
The will is considered the basis of any estate plan. Everyone with an estate should have a will. A will is defined as a personal declaration of the testator about his or her desired disposition of property after death. Of course, a will is only legally enforceable at the time of the death of the testator. Therefore, the testator is able to make changes to the will at any time before his or her death or mental incompetence. When you write your will, you should include instructions to an executor, who will be responsible for handling your estate after your death.
Here are some of the advantages of writing a will:
- The testator can choose the executor.
- The testator can select a guardian for minor children and other dependents.
- The testator can distribute property to preferred beneficiaries.
- The testator can donate generously to charities.
- A will can help minimize estate task.
- A will can help create peace of mind for the testator.
What Is a Trust?
A trust refers to the transfer of property to an individual to manage the assets to the advantage of the beneficiaries within the trust's control. Individuals must create trusts during their lifetime. A trust can be effective during or after one's lifetime. Such a trust is called a living or inter vivos trust. On the other hand, a testamentary trust is included within a will's provisions and is only effective after death.
Just as a will can be altered prior to death, a testamentary trust can also be changed before death. However, an individual can create a living will to be irrevocable or revocable. If a trust is revocable, the creator of the trust still has access to the assets. However, if a trust is irrevocable, the assets no longer belong to the creator of the trust after the transfer. With an irrevocable trust, the trust entity owns the assets.
Some benefits of creating a trust include:
- Professional investment and management of assets.
- A trust can minimize estate and gift taxes.
- The efficient transfer of assets to beneficiaries.
- Define conditions for the distribution and use of assets.
Even if you don't believe your assets are substantial, chances are you would still benefit from having an estate plan. If you're new to the process of creating an estate plan, refer to the information above to learn about the distinction between a will and a trust. For more information about creating an estate plan, don't hesitate to contact us.