Differences between a Trust, Will and Estate Plan - What You Should Know
There are many misconceptions about who should have a trust, will or estate plan. Many think it’s for the rich, or if you’re nearing retirement age. But, if you have any type of assets you’ll want to protect them and make sure they are handed over to the people you love the most in case something happens to you. These topics can be confusing, so we will explain the difference between a will, trust and estate plan and how they play a role in determining future financial plans for yourself and your loved ones.
What is the purpose of a will? A will is a legal document describing who will receive your property and assets after your death. It can also appoint guardians, should you have younger children. The major difference between a will and trust is a will has to go through probate. Probate is the process of the court accepting the will and putting it in motion. This means making sure the last will is found, examining to ensure it is properly executed (signed, witnessed and filed according to state laws) and requesting the courts approval. Upon approval, the beneficiaries are notified as well as any creditors. Any outstanding bills are paid, taxes are withdrawn and then any remaining assets are distributed according to the will. Probate can vary in length and is open to the public.
What is a trust? A trust is set up to provide legal protection for a person’s assets and to make sure those assets are distributed according to their wishes upon their death. Unlike a will, if the trust is set up correctly, there is no need to go through probate. The beneficiary of the trust automatically becomes the owner of the assets and therefore the court doesn’t need to get involved.
There are two main trusts people use: revocable and irrevocable. The biggest difference is a revocable trust can be changed at any time while an irrevocable trust can’t be changed unless all beneficiaries are in agreement.
What is an estate plan and how does it factor in with everything? An estate plan consists of documents that are effective during your lifetime as well as other documents that take effect upon your death. They encompass both the will and trust as well as the power of attorney, health care or medical directive, and a beneficiary designation. The power of attorney allows a third party to act on behalf of you if you become incapacitated or deceased and addresses your property and/or financial affairs.
To speak with a trust professional to get started on a will, trust or estate plan, visit us here.
If you would like more information on these topics, you can click the links below for more information.
Legalzoom
Nerdwallet
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