A will is a legal document that explains how you want your affairs handled and your assets distributed after your death. A trust is a fiduciary agreement by which a grantor (also called a trust) gives the trustee the right to maintain and manage assets for the benefit of a specific purpose or person. When it comes to protecting your loved ones, it's essential to have both a will and a trust. A will does not take effect until after your death, while a living trust is active once it is created and financed.
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. See Transfer of Ownership to Trust, below.
Estate planning can be done by drafting a will or creating a trust. While a will is a document that expresses the creator's wishes regarding the distribution of his or her property, a trust is an agreement that allows a third party to maintain and direct the creator's assets in the trust fund. Because of the complexity and cost of a trust, sometimes living trusts are not updated as often as they should, every time there is a significant change in life. Whether you choose to create a will or a trust or both, it's never a bad idea to seek professional advice from financial and legal advisors.
Keep in mind that a living will is also different from a final will and a dumping will (and yes, we know that names can be confusing). From small nuances to significant differences, we'll look at everything there is to know about wills and trusts in estate planning. For a living trust to work as intended, it must be financed, which means that the various assets housed in the trust property, accounts (investments, retirement, banking), etc. A trust is a fiduciary relationship in which a trust gives the trustee the right to own title to the assets or property of a third party (its beneficiaries).
For example, if a home was removed from the trust during a refinancing and was never put back in the trust, a transfer will take care of transferring the home back to the trust. Assets that are not funded in the trust or that do not have beneficiary designations are dumped into the estate estate. Financial institutions and others dealing with the trust must be convinced to accept the authority of a successor trustee. The grantor appoints a trustee to administer those assets on behalf of the grantor or designated beneficiaries.
A trust allows the successor trustee to manage trust assets while the grantor is incapacitated and eliminates the need or motivation for a court-appointed guardian to monitor financial interests. While a successor trustee may not have to go to court to take action, completing the transition could take some time and expense. For example, a will may provide for a trust to be created to help care for minor children until they turn 25.With a spilled will, anything a person owns outside your trust, as well as anything that is subject to your last will, will be paid to your trust at the time of your death. Wealthy individuals and institutions often use irrevocable trusts to protect money from taxes or creditors, and irrevocable trusts are much more complicated than revocable trusts.
Neither wills nor living trusts can help you reduce estate tax, but most assets don't owe estate taxes.
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