Protecting your family’s assets and ensuring your financial legacy will involve hours of research and estate planning. If you are unsure whether to create a will or a trust or curious about the benefits of trusts and wills, this article lists five major differences between the two.
There are many ways that an individual may plan for financial succession. The two main options used to pass on one’s assets is through the creation of a last will and testament or the establishment of a living trust. Although both are capable of legally distributing properties to surviving relatives, they contain differences that when chosen incorrectly, may lead to unwanted consequences.
Choosing Between Creating a Will or a Living Trust
- A Will involves a public process while a Living Trust is a private document.
After death, all outstanding debts are repaid and remaining assets are redistributed to your trustee in a legal process called probate, which is enacted by the court under the state law. This process may last for about five months and up to nine months for contested wills. Since probate is a public process attended by heirs, family members, and creditors, each one of them may know how big your estate is, how much debt you owe, or who will receive what from you.
If you want to avoid probate, have a trust instead of a will. Living trusts are private documents that do not require intervention from any court. As such, a living trust may be enacted upon in the attorney’s office of the deceased person. The process is often faster and costs you less than when you go to probate courts. In addition, with a trust, you can ensure privacy on when and how you transfer wealth.
- Living Trusts permit delays in estate distribution.
If you want certain conditions to be met prior to property distribution, or have full control of your estate administration, a living trust is your best option. An estate planner may indicate certain requirements that must be fulfilled prior to claiming an inheritance. For instance, reaching a certain age (for minor children), being clean of substance abuse or gambling. You may hold off distributions for divorced beneficiaries, those with disabilities, are incapacitated, or have outstanding debts. You can also have the fund divided into monthly payments or give a certain percentage once a milestone (such as graduation) is reached.
To illustrate the benefit of trusts, consider a trust beneficiary who is filing for personal bankruptcy. If the estate has been given immediately, this will most certainly be included in the bankruptcy estate to pay off creditors. However, if the inheritance is delayed after debts are discharged, the beneficiary will receive the trust money only after the bankruptcy is settled.
- A Trust can give tax benefits.
Unlike wills, when you create a trust, you may save on federal estate taxes. Unmarried creators may include a provision in their trust to use their own estate tax exemption, while those married may use both spouses’ exemptions to achieve lesser amounts on your estate taxes.
- Planning is less expensive for a Living Trust than a Will.
If cost is the main consideration, it may be best to go with creating a trust. Probate court appearances involve paying legal fees, executor fees, and county taxes, among others. Fees associated with the probate process make up much of the costs in will planning and the process may consume up to 10% of your house and other investments.
Moreover, a decedent’s loved ones may be required to face more than one probate if your properties are situated across multiple states.
- A Will must be reviewed by an attorney to be considered legally valid.
A Will is a legal document that must be validated by a legal professional before the grantor passes away. This is why individuals should avoid relying on online Will creation sites which gives you a template for wills and assists you in creating one.
You want your Will to be validated to avoid causing an heir to be legally challenged by other relatives who want a part of your estate.
Finalizing Your Decision
The whole process of estate planning varies between individuals and families. For some, the creation may take a long time and appear complex at the start. To avoid suffering the consequences of making the wrong choice, start consulting with an experienced estate planning attorney in Michigan. Make sure to look for one specializing in wills and trusts near your area.
If you are looking for a law firm dedicated exclusively to estate planning, Entrusted Estate and Asset Protection, P.C. is your best choice. Start your journey on an affordable and hassle-free estate planning by getting in touch with our estate planning attorneys and claiming a free estate plan review.