Will Vs Trust: A Simple Guide On Everything You Need To Know

It may not be the happiest thought in the world to consider what to do with your assets after death, but it is a critical issue you should address sooner rather than later.

If you want to maximize the amounts you leave to family, you need to consider the best vehicles for saving on taxes and other fees. You should also think about how much control you want to maintain over those assets both before and after you die.

You should lay out the pros and cons of your individual situation. Figure out what is best for you: will vs. trust.

Where There’s Will There’s a Way

If you have children, you should definitely get a will.

Even if you do not have any assets, if you have minor children you can designate a guardian under your will. You want to choose the friend or family member most qualified to raise them if you are no longer around.

Include language called ” the Titanic clause.” This arranges for guardianship and division of assets if a couple or several members of a family all die at once in an accident.

Even if you are divorced, your ex will likely get custody of a minor child unless they have been declared an unfit parent. You can’t use your will to bypass the child’s rightful parent.

You Get a Car, and You Get a Car!

If your children are all grown, why bother with a will?

A will is also the appropriate vehicle with which to designate who will inherit various valuable objects. You can leave a car to a cousin and your precious stamp collection to your brother.

You can also designate certain beneficiaries like charities to whom you may wish to leave a portion of your estate.

Make sure you work with a lawyer who knows how to write a will when you draw up these documents to make sure your wishes will be legally binding.

In God We Trust

So, why would someone choose to set up a trust when they can just write down who should get what in a will?

Trusts can have many advantages, especially for people with high net worths.

Most importantly, a trust will not pass through probate upon your demise. That means that your children will not be stuck in court for months or even years while the legal system slowly works to approve the will.

Even the most skilled probate attorneys will tell you that this process can drag on for a very long time. Your estate may lose a significant part of its value to court fees and lawyer bills while going through probate.

A trust is set up with beneficiaries, who are the designated recipients of whatever is in the trust. A trust will also have an executor, who will administer the trust as directed in the document. There will be alternate trustees named, in case someone dies or disappears.

If your children are beneficiaries of your estate under a trust, they will be able to access the assets immediately upon your death. This could be a critical decision if they need the funds right away to pay for college, a mortgage, or other important expenses.

Death and Taxes

They say that the only sure things in life are death and taxes.

Actually, if you plan your state wisely with a lawyer or financial planner, you can avoid some of the most burdensome taxes.

Trusts can convey large assets like stock portfolios, businesses, real estate, and investments.

If your child inherits one million dollars from you under your will that is probated by the court, he or she will have to pay inheritance tax. That can be pretty high depending on what state you live in.

A trust can minimize tax impacts of assets received upon a family members’ death. Anything one inherits from a trust won’t be subject to estate or gift taxes.

However, the beneficiary does have to pay income tax or capital gains tax on profits from the assets. For example, if they sell the stock portfolio, they must pay taxes on any gains they receive.

Right to Privacy

Another advantage of trusts is that the details of your finances will remain relatively private. When a will is probated, it becomes a public document. Anyone who wants to can take a look.

Now most of us are not celebrities or billionaire bankers, so we may not be concerned about newspaper articles about our estate. But many people do prefer that their business remains private, By placing assets in a trust, there is less worry that these dealings will be publicly scrutinized.

Changing Your Mind

You can draft a will at any age. You can also revoke it, and rewrite it. However, most people do it once and put it away. It should really be changed only on significant family events like the birth of a child or a divorce.

Trusts, on the other hand, can be made revocable. You can place all kinds of conditions on them. You can specify that your child may not get access until he or she is 20, or 30 years old. You can require your beneficiary to ask permission when they need to take extra money out of the trust.

Placing conditions and limits on a revocable trust protects your legacy until your children are mature enough to handle it.

Will vs. Trust: What’s Best for Your Family?

In weighing the benefits of will vs. trust, you should assess the potential tax liability for your children, and see how you might defray costs. You should also consider what kinds of assets you will be leaving: investments that generate income, collectibles which may fluctuate in value, or illiquid assets like real estate.

Talk to an experienced trusts and estates attorney, and possibly a financial advisor. They can give you a range of options to make sure your hard-earned estate is distributed the way you want it to be.

For more tips on maximizing your income now and in the future, keep checking back.