Few decisions are more important in life than deciding what happens to the assets you've accumulated after you have passed on. Typical assets are money in bank accounts, investments, retirement and pension accounts, and valuable property. Wills and trusts are legal documents that decide how these assets are to be distributed to beneficiaries. It is important to understand the differences in these two methods in order to make the best decision for your situation.
Overview of a Will
Wills have been around seemingly forever. A will is your statement of what you wish to be done with your money, property, and possessions. A will may be handwritten, but is usually typed. Wills take effect after a person is deceased.
A will allows a person to decide exactly how their worldly assets are to be distributed. Beneficiaries are chosen, and the will determines what they receive. For instance, a spouse is to receive all sums of money remaining in bank accounts, as well as legal rights to the home. Children and friends may receive money and special personal items. The will can name a trusted person to be the guardian of young children. Provisions are made to take care of beloved pets.
A person can state how they wish to have their remains handled in their will. This avoids arguments between loved ones over final arrangements.
The best way to ensure that a will is followed without too much legal delay is to name an executor. The executor is responsible for ensuring that last wishes are carried out appropriately. The executor is usually someone that can be trusted with such a weighty responsibility.
Wills are subject to the probate process. Depending on individual circumstances a will can be held up in probate for months or even years. Wills can be challenged in court, which slows down entire process. While a will is tied up in probate no money or property is disbursed.
Overview of a Living Trust
A living trust is a legal document that allows for the swift transfer of money, property, and other assets to beneficiaries upon death. There are two types of trusts: revocable and irrevocable. A revocable trust is one that can be changed during a person's lifetime. An irrevocable trust is set in stone. Trusts go into effect as soon as they are signed.
Trusts have the advantage of avoiding the probate process. This is because a person is not technically the owner of their assets. Assets are owned by the trust. A revocable trust provides complete control over all assets in the trust while alive. Alternately, an irrevocable trust is only administered upon the person's death.
Setting up a trust is expensive and is mainly recommended for people that are older or have a large amount of wealth. In addition to avoiding probate, trusts offer some tax benefits. Trusts provide more legal protection against challenges in court. Beneficiaries are taken care of in a timely fashion as opposed to wills.
Whichever you choose, make sure that you spend the time to arrange a plan of action for your estate and for the betterment of those family members left behind in the event of your death.
