When it comes to protecting your loved ones, having both a will and a trust is essential. Although both wills and trusts are legal documents for managing your estate, they are created under different laws. Wills are subject to probate law, while trusts are subject to contract law. The main function of wills and trusts is to name the beneficiaries of their property.
In a will, you simply describe the property and list who should get it. When using a trust, you must do so and also transfer ownership to the trust. Estate planning can be done by drafting a will or creating a trust. A will is a document that expresses the creator's wishes regarding the distribution of his or her property, while a trust is an agreement that allows a third party to maintain and direct the creator's assets in the trust fund.
Unlike a will, a trust is active on the day it is created, and the grantor can publish the distribution of assets before death. Trusts can be revocable (allow changes) or irrevocable, meaning they cannot be modified after they are created. A living trust (a trust created while the trustee is still alive) can be changed by your grantor. A trust offers more control of assets than a will, but is generally more expensive and more complicated to establish and maintain.
It is one of the best gifts you can give to your loved ones and yourself, since you will have the peace of mind that the people you care about will be well cared for. A grantor creates and controls a trust to manage, distribute and maintain ownership of property in the present and future. Keep in mind that after creating a trust, you must also finance it by transferring assets to it, making the trust the owner. If approved without creating a will or trust, the state of your residence will have to be involved to oversee the distribution of your assets, which can be costly.
For those concerned that they may be affected by wealth tax at some point, this is where an irrevocable trust might make sense, as it removes assets from your estate in an effort to reduce your future tax burden. Usually, a will requires the signature of two witnesses and notarization to be a viable legal document. This means that any assets that exceed that exemption will be subject to federal wealth tax, which can be up to 40% depending on the taxable amount, and also to state wealth tax. A will is only effective upon death, therefore, the provisions of a will cannot address issues related to disability (the legally determined inability to make competent decisions).
Assets that are not funded in the trust or that do not have beneficiary designations are dumped into the estate estate. Common charitable trusts include a charitable remnant trust, or CRT, and a main charitable trust or CLT. A trust is a legal agreement through which a person (or an institution, such as a bank or law firm), called a trustee, has legal title to the property of another person, called a beneficiary. For example, if parents want their children to inherit income only at certain times or to care for a child with special needs, these wishes can be achieved through a trust. That means that a court oversees the administration of the will and ensures that the will is valid and that the property is distributed the way the decedent wanted.
If you have children under 18, the court will be responsible for appointing a legal guardian.