Have you ever thought about who you would like to give your money, real-estate, or that special family heirloom to after you pass away? Most of us have, but have you taken the necessary steps to ensure that your belongings are received by that person or persons? The two most common methods of transferring your assets to your loved ones after your death are a will or a living revocable trust. What is the difference between them, and which one is right for you?
A will is a written document that allows you to establish how you would like your personal assets to be distributed amongst your family and friends after you have passed away. You can also dictate, within reason, how you would like your assets to be used by their recipient. A will can be changed at any time throughout your life but becomes irrevocable at the time of your death. A will also allows you to designate a guardian for any minor children you may have. Without such guidance in your will, it will be up to a judge to appoint a guardian as they see fit.
- Easier to set up. A will is generally easier and cheaper to set up than a trust as it does not need to be actively managed or funded.
- Can be used to designate a guardian for your minor children
- More restrictive. A will does not provide as much freedom as a trust to control the distribution of your assets after your death.
- Court intervention. Transferring your property through a will requires the beneficiaries to go through probate court, which can be a time-consuming process and makes your financial affairs part of the public record.
LIVING REVOCABLE TRUST
A living revocable trust is a legal entity that you set up in order to manage your assets while you are alive and transfer them to your beneficiaries after your death. Unlike a will, there is no court intervention required to transfer property to your beneficiaries. One of the major differences between a will and a trust is that a trust must be funded in order to be valid. A trust can only be used to transfer property that was placed in it before your death.
- Greater control. A trust allows you to dictate how and when a minor child will receive any money left to them. It can also be used to set up specific funds such as for a child’s education.
- Avoid court. Transferring your property through a trust allows you to bypass the time-consuming process of probate court and allows for your financial affairs to remain private. Any assets placed in a trust can be transferred immediately to your beneficiaries after your death.
- More costly to set up. Trusts are more expensive than wills because they require continued management after the initial setup and they can only control assets that have been placed into them.
- Cannot be used to designate a guardian for your minor children.
You should consider the unique circumstances in your life to determine if a will or a trust would be more beneficial. In some circumstances it may make sense to have a trust but to supplement it with a will. For example, if you have one or more minor children you may consider setting up a trust so that you can establish college funds or hold money for them until they reach a certain age, and then you may want to supplement that trust with a will to designate a legal guardian for your children if you pass away before they reach adulthood.