Jasper L. Edwards
Preparing for the inevitable can be daunting, but it’s essential to be proactive in regard to inheritance. With the proper measures in place, you can control what happens to your assets after you die and can have peace of mind knowing your loved ones are protected. When it comes to estate planning, you have different options. You can choose between a living trust vs. a will. It’s important to understand the pros and cons of each, in order to find the best solution for you. Here is an overview of both a living trust and a will comparing how they work and their benefits.
What is a Will?
A will and a living trust are both ways to ensure your assets are inherited by the people of your choice. In the case of a will, this inheritance occurs after you die. A will is a legal document where you can declare exactly how you would like your estate to be handled. This involves naming beneficiaries, or those to inherit your assets, and details of the possessions you would like them to inherit. You also need to nominate an executor, who will carry out the administration of your will.
The executor could be an outside party, or even a beneficiary if you so wish. Their job, however, is to ensure your assets are distributed to all other beneficiaries. They’ll also need to apply for probate, which is the legal right to deal with the estate of someone who died. Having a will makes this process a lot easier. You can also appoint legal guardians for your children in your will, without doing so, a guardian will have to be nominated by the court.
What is a Living Trust?
The main difference between a living trust vs. a will is that a living trust means transferring your assets while you’re still alive. A trust is a legal agreement in which you, the settlor, nominate a trustee who will take control of your estate. You will also need to name beneficiaries, similar to in a will, but you can arrange specific details. For example, you might want to wait until your children are a certain age before they inherit certain assets such as property.
In the case of a living trust, you can outline all the terms in the trust deed. This gives the trustee specific instructions on how to distribute your assets among the beneficiaries and any relevant conditions. Even though you are no longer the legal owner of your assets, you will still have access to them and the trustee will distribute them accordingly in the event of your death.
There are different types of living trusts, which the settlor can choose from depending on their circumstances. A bare trust, for instance, is when the beneficiary has automatic access to the capital and income of the trust as soon as they turn 18. Another common type is a discretionary trust, where the trustee can make decisions on what gets paid out and when often based on the guidelines left in the trust deed.
Other types include interest in possession trusts and accumulation trusts, where interest or income is built within the trust, and passed on to beneficiaries. You can also combine more than one type of trust, so it’s recommended to get financial advice to help you deal with this complex procedure.
What are the advantages of a Living Trust?
The advantages of a living trust are mostly tax-related. You can avoid probate and reduce other estate taxes. Probate can be a lengthy and time-consuming process in some cases. Putting your assets into a trust also allows you to reduce inheritance tax, as they will no longer count as part of your estate. Another advantage is that you can oversee the distribution of your assets during your lifetime. If the settlor wishes, the beneficiaries can receive their inheritance at the time they decide. Even though the settlor essentially gives up their assets, they are still in complete control of what happens to them.
What are the advantages of a will?
A will enables you to provide financial security to your loved ones. By outlining all your requests in a formally witnessed and signed legal document you can avoid inheritance disputes, and ensure your assets go to the beneficiaries of your choice. You can specify many other details such as appointing guardians for your children, outlining what should happen to your pets, and plans for your funeral.
A will is an essential part of estate planning. Without a will, your death will be declared “intestate”. This means the court will have to decide what happens to your estate. The court will also choose beneficiaries according to who is the most “entitled”. This often means starting with immediate family and spouses and working their way out. By making a will you can also ensure that you don’t end up paying more income tax than you need to.
Living trust vs. will - Which is the best solution for you?
In order to decide on the best solution for you, it’s recommended to go through your estate planning with a financial advisor. It’s a complicated process and depends on your unique situation. It is also possible to have both a will and a trust. Trusts in general offer more control over assets, however, they are more complex to set up. A will is recommended particularly if you want to assign guardians to children and protect other family members.
Both a living trust and a will are ways to ensure your assets go to the assigned beneficiaries. You need to be proactive in order to stay in control of your estate, before and after your death. It’s a good idea to seek professional advice. A financial advisor will be able to help you with your estate planning every step of the way and give you peace of mind for the future. If you would like further information about living trusts vs. wills, find out more today.
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