An estate plan is not complete without a will and a trust. These two components of estate planning are key documents in estate planning. Without a will, your estate will be distributed according to the intestate laws of your state. Without a trust, there is a likelihood that your estate will undergo the expensive and stressful probate process.
So, it is safe to say that a will and a trust are two of the most vital documents in estate planning.
If you really understand the concept of a wail and a trust, you’ll see a little similarity, and I guess it’s why some people believe that they are identical. In this article, we’ll be taking a look at the difference between these documents. However, we need to understand what estate planning is first.
What is Estate Planning?
Estate planning is very important. In fact, it is as important as those financial plans you make because it boast of a lot of potential. Sadly, each year, several people die without an estate plan leaving their loves ones to battle for a portion of their estate. This is so sad, especially for the deceased family.
Before we digress too much, let’s take a good brief look at what estate planning entails.
Estate planning, in the simplest definition, is a plan made to dictate how you wish your assets or properties to be managed, and shared after your death. In other words, it is a plan that speaks for you after death. So with an estate plan, you can have a say in almost everything regarding your assets after your death. Also, should you become incapacitated, and estate plan can help you put the right plans in place to ensure that you have a say in all matters concerning you be it your medical care your finances, or legal matters.
What is A Trust?
A trust can be defined in several ways. One can define a trust as a fiduciary relationship where a property is held by a party on behalf of another party. Or one can also define a trust as a way of managing assets for individuals. A trust is usually created by a trustor, grantor, or settlor, who is the owner of the trust. The trustor then transfers the assets to an individual who is commonly regarded as the trustee. The trustee is charged with holding the assets for the beneficiaries of the grantor.
Uses of A Trust
A trust is used for several important purposes, below is a list of a few:
- A trust can be used to safeguard family asset
- A trust can be used to transfer assets while you are still living
- A trust can be used to transfer assets when you die
- A trust can be used to escape the difficult probate process
- A trust can be set-up for individuals who can’t handle their affairs due to incapacitation
What is a Will?
A will is very common. In fact, it is safe to say that a will is the most common component of estate planning which is why most people believe that a estate planning is all about drafting a will.
Let’s take a look at what a will is.
A will is basically a legal document that contains the names of the estate beneficiaries, the estate executor, the deceased assets, among other important information.
Difference between a Trust and a Will
A Will is quite different from a trust even if they both appear similar. Below are a few difference between these two important estate planning documents:
- A will comes into effect after the death of the estate owner whereas a trust can come into effect anytime depending on what the estate owner wants.
- A will undergoes probate while a trust doesn’t. In fact, assets placed in a trust don’t undergo probate (in most cases).
- A will covers assets in your name. This legal document doesn’t cover properties placed in a trust or held in joint-tenancy whereas a trust covers only assets placed in the trust.
- Another major difference between a will and a trust is that a will is often open to the public. On the other hand, a trust always remains private.