Making end of life plans isn’t anyone’s idea of a good time, but it is a necessity if you have assets, children or both – regardless of your net worth. After all, if you pass away without an estate plan in place, it’s considered “dying intestate,” which means you’ll have no say over who inherits your assets. It could also mean a costly and drawn-out legal process for your loved ones in probate court.
Wills and trusts are two estate plan options designed specifically to give you control of the distribution of your assets and to ensure your loved ones get what they’re entitled to. Put simply, a will centers around the distribution of your assets after you pass, and a trust usually allows you to manage your assets while you’re still alive – depending on the type.
Understanding wills
You’ve likely heard of wills. They are a legal document that provides instructions on the division of your assets after you die. But more than that, you can also name your specific beneficiaries, designate guardians for children who are minors and leave detailed instructions on when and how the distribution occurs.
Wills are still submitted to the probate court process; however, this is just to ensure that they are legal and valid. Once deemed valid, your executor – the person you select to manage your estate after death – will then proceed in dividing your assets between your beneficiaries per your instructions.
Understanding trusts
Though there are many different types, a trust is a legal entity that allows you to put conditions on the division of certain assets and potentially minimize gift and estate taxes for your loved ones. As soon as you create a trust, the trust becomes the legal owner of your assets. Trusts also get to bypass probate and are not public record.
The two primary types of trust are living and testamentary. A living trust is set up during your lifetime, and a testamentary trust is set up in a will and goes into effect after your death. Living trusts can be either revocable or irrevocable, but revocable living trusts are the most common type. In a revocable living trust, you are free to change the terms of the document at any time, whereas irrevocable trusts can usually not undergo revision without your beneficiary’s consent.
Which is right for you?
The right estate plan for you will vary from person to person based on your unique situation and assets. But whether you choose a will, a trust or a combination of both, you can provide yourself and your family with peace of mind knowing they will have some support after you’re gone.