Which Is Better, A Will Or A Trust?

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Trusts are formal legal arrangements that safeguard property and allow the owner to choose how it is to be managed and distributed in the future. Trusts can be used during a person’s lifetime and after they pass away, while wills only become effective after their demise. Wills and Trusts are useful components of estate planning whether used independently or in tandem.

  • Wills

After your death, your assets will be distributed in accordance with the terms of your will. In addition to naming an executor and guardians for any minor children, you can also include funeral and burial arrangements in your will. The executor of a will can be instructed to establish a trust and name a trustee to keep assets until the beneficiaries reach a certain age or gain legal majority, as is often the case with minor children.

  • Trusts

In a trust arrangement, the grantor or trustor hands up legal title to the trust assets to the trustee. The terms specify the trustee’s duties, the distribution of assets to beneficiaries, and the eventual disposition of the trust’s assets. The fiduciary obligation of a trustee is to manage trust assets in a way that benefits the beneficiaries and is consistent with the trust deed.

  • Discretionary Trust

Furthermore, trusts can be established for many different reasons, both during and beyond the grantor’s lifetime. Revocable trusts are established throughout a grantor’s lifetime and can be changed, amended, or terminated at any time by the grantor. The grantor may also serve as the trustee of a revocable trust. Grantor is considered the trust’s “legal owner” for tax purposes. After the death or disability of the grantor-trustee, the trust instrument may specify the appointment of a successor trustee and the manner in which the trust’s assets are to be divided. When assets are transferred from a revocable trust, probate is not required. By contrast, since the grantor retains control over the trust’s assets during his or her lifetime, these assets are included in the grantor’s taxable estate.

  • Permanent Trust

However, when transferring assets to an irrevocable trust, the grantor effectively relinquishes control and modification of those assets. The grantor does not act as the trustee of an irrevocable trust. The grantor will not be subject to taxation on any revenue generated either by trust and will not receive any of the fund’s assets so long as the grantee has entirely abandoned all proprietary interest in the trust’s assets. If the transfer to the individual bank is done properly, the grantor’s assets may be protected from the grantor’s creditors.

Issues To Think About When Making An Estate Plan

Although most people don’t think about it until they’re older and more financially secure, estate planning is something nearly everyone should think about. Even if all you have is a house, some savings, and maybe some retirement funds in an IRA or 401(k), you still want to make sure that the individuals you intend to receive them do, and that your intentions are carried out as efficiently and cheaply as possible. And if you have intricate personal relationships, such as offspring from more than a marriage, a dependent mother or relative, or offspring their financial resources vary substantially, leaving clearly expressed and, given the circumstances, clearly explained directives for dispersing your assets might avert potential disagreements among your successors. For example, if you have children from more than a marriage, a dependent parents or relative, or offspring whose monetary support vary greatly, this might be the case.

Trusts Or Wills: Which Is More Preferred?

The relative merits of a will and a trust for every given set of relatives and assets must be considered. Although wills can be challenged in probate court, they are often less expensive to draught and simpler to put into effect. An irrevocable trust might be the best option for wealthy people who want to bypass the probate process and reduce their potential liability to inheritance taxes. It is possible to transfer ownership of assets to a third party by creating an irrevocable trust, but doing so comes with additional costs, the need to select a trustee, and the inability to make changes once the trust has been established.

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