[vc_row][vc_column][vc_column_text]Having a solid estate plan in place gives you peace of mind that the wealth you build over your lifetime will be passed on to those you care about in accordance with your wishes. A will is a fundamental component of an estate plan, and every adult should have one. But in some cases, a trust might be used to achieve your objectives. Here, we’ll look at wills and the two most common types of trusts: testamentary trusts and living trusts.
In a will, you name one or more executors to manage and distribute your property when you die. Your will specifies who is to receive the assets in your estate and how they will be divided up. A will takes effect only after death. It does not authorize anyone to act on your behalf with regards to your assets or financial affairs while you are alive or incapacitated. (That permission is granted through a Power of Attorney.)
A testamentary trust is created in your will and, like the will, takes effect when you die. It is less expensive to set up than a living trust. The assets in this type of trust are part of your estate, which means that estate fees or taxes may need to be paid on them. A testamentary trust is often used to safely convey assets to minors or to manage assets by controlling the timing of the release of funds.
Setting up a living trust is more complex. It involves:
- Transferring ownership of selected assets into a trust while you are alive.
- Designating the recipients (beneficiaries) and the terms of asset distribution, which can take place while you’re alive, if you’re incapacitated or after death.
- Naming a trustee who will manage the property while you are alive. The trustee can be a trust company or another person, or you may name yourself as the trustee and retain full control of these assets while you are alive. (Other trustees would assume control when you die.)
Assets in a living trust do not go through probate when you die, which can have a number of positive outcomes: the trust remains private, unlike a will; avoiding probate (and the possibility of the will being contested) may reduce lawyer’s fees as well as avoiding probate fees; and the assets can be distributed without waiting for the will to go through probate.
A living trust can be used for many purposes. It can help manage the succession of a family business, for example, or ensure that use of a vacation property is shared among family members.
However, a living trust costs more to set up and maintain than a testamentary trust, so the benefits need to outweigh the costs.
Professional advice is essential
Experienced estate planning specialists/lawyer will ensure that your estate plan includes the right legal documents to accomplish your objectives and that they are structured in the most cost-effective manner possible.