Do you know that 68% of Americans have no will?
Considering the sheer amount of heartache, effort, time, and money that your loved ones will have to pay, setting up a will is a piece of cake. You can grab a template online and have it ready in 30 minutes.
On the other end of the spectrum, you might be dealing with a financial estate that is complex and far-reaching. In this case, maybe just having a mere will won’t cut it.
Going for a living trust might sound complicated. However, you’d be surprised at the number of benefits it provides, even if you think you have minimal wealth.
If that’s your first time hearing about the intricacies of wills and trusts, no worries. You’ve come to the right place. Keep reading for our full breakdown on everything you need to know about wills, living trusts, and the differences between both of them.
Testamentary Wills: The Will Basics
Before we start our deep dive into the nuances of what makes a living trust different from a traditional will, let’s make sure you’ve got the basics covered.
Known in legalese as a testamentary will, a common will is a document that’s legally enforceable covering the details of how you want your affairs and assets handled after your death.
Common Contents of a Will
It can be very detailed, with sections on how you want your funeral or memorial to look like, or even if you’d prefer cremation or a traditional burial.
Generally speaking, you can find a list of debts and assets on a will. Those can contain vehicles, property, the contents of a safe deposit box, and even how you want to divide up any family heirlooms.
Moreover, this is the place where you can leave specific possessions to non-family members, like friends and charities.
When it comes to financial management and estate planning, your will is your first line of defense. It’s your primary document on how you’ll want your estates to be divided up.
The Anatomy of Trusts
In the realm of estate management and planning, a mere will might be too simplistic to deal with the estate you’re leaving behind.
This is where the benefits of having a trust truly shine. Simply put, it’s a fiduciary relationship, where you’re permitting another party to handle your assets in the case of your death.
This authorized party will be responsible for managing and handling your assets. They’ll be working for the benefit of your beneficiaries.
If you’re curious about how a trust works in detail, you’ll want to check this article out. For now, we’ll take a look at the two main types of legal trusts. You have a living trust and a testamentary trust.
But before we do, let’s make sure you’re aware of the monster-under-the-bed of estate planning: probate court.
What Is Probate Court?
In short, having a trust on hand can keep your beneficiaries out of probate court.
Probate court is the judiciary section that’s in charge of settling trusts, wills, guardianships, and conservatorship. The tricky thing about probate court is that it can easily find your testamentary will to be insufficient when it comes to specific issues, like appointing guardians if you have minor children.
The delightful benefit of having a trust is that you don’t have to worry about any estate transfer issues landing in probate courts. Basically, the trust will have already put you through multiple steps to clarify every single little detail.
This way, your heirs won’t have to spend months on end going through probate court to settle your estate affairs.
The Estate Transfer Savior: Revocable Living Trust
A “living” trust is one that’s created while the primary party that’s the owner of the estate, or the trustor, is alive.
The “revocable” part means that it can be changed and edited throughout the life of the trustor. It allows the trustor to prepare for the estate’s future, while still maintaining their ownership of the property.
The trust becomes active when the trustor passes away. The key benefit of a living trust is that the property will be transferred outside of probate court. This translates to no attorney fees or court fees, and a streamlined transfer of your estate to your beneficiaries.
A Testamentary Trust: Assigning a Trustee
The other type of legal trust is a testamentary trust. This one will require the trustor to name a trustee in their documents.
This trustee is responsible for overseeing the assets’ distribution according to the trustor’s wishes. Much like with a revocable living trust, the transfer of real estate won’t be going through probate court.
Which Should Choose: A Will or a Trust?
If you’re already worried about your estate management, and how you’ll want to divide them up after your death, you’ll definitely want to set up a trust.
Yet, a trust can’t cover all of your post-death necessities. For instance, you won’t be able to name a guardian for your kids except through a will.
To be on the safer side of the law, you’ll probably want to have both documents on hand. Of course, a will is much easier to set up and won’t cost you much. So, you’ll want to start there.
Regardless of your financial situation, everyone should have a will. On the other hand, not everyone might need a living or a testamentary trust.
Start by taking a look at your current assets, as well as your family situation, then you can make your decision.
Ready to Set Up Your Financial Plans?
We know how overwhelming it can be to set up financial plans for a time that you would be gone. However, there’s no escaping the fact that our assets don’t follow us into the grave, and if you want to have your wishes followed, it’s critical to back them up with legal documents.
Hopefully, our guide on the differences between a will and a trust has shed some light on the process.
If you liked our article, you’ll want to check out additional tips and legal advice in our financial section.