A comprehensive estate plan has many parts. The most common of these are a will and a living trust, which work together to help you and your family plan for the future.
LIVING TRUST VS. A WILL
Often, people ask me "why have a trust instead of a will?" or "will or trust: which is better?" or "who needs a trust fund anyway - isn't that just for the super-rich?"
Actually, you don't have to choose one or the other - both of them work together to help you plan ahead for your legacy. In the most common situation, an estate plan would include a will and a living trust, sometimes also called a revocable trust or revocable living trust.
WHAT IS THE DIFFERENCE BETWEEN A WILL AND A TRUST?
A will is basically a set of directions to a court about what to do with your estate after your death: it explains what you want to happen to your property, money, personal items, etc. A will is filed with a court, and then the executor or administrator is in charge of making sure it is carried out, under court supervision. For centuries, a will was the main legal document that directed how a person's assets or estate would be treated after their death. And it can still do that - especially if your estate is simple or modest.
A trust, unlike a will is a contract - think of it as an agreement between you and your legacy. There is no court supervision - instead, your chosen trustee carries out your wishes, thus avoiding court supervision (and public scrutiny). The Trust created by the trust document creates a legal entity that can carry out your wishes. It can control how your property, money, and belongings are treated, but it has greater flexibility and often much broader powers than a simple will. Trusts have also existed for centuries, but in recent years they have become crucial for even simple estate plans.
WHAT IS A LIVING TRUST? WHAT IS AN IRREVOCABLE TRUST?
The most basic kind of trust is a living revocable trust. Living means that it is created in your lifetime - and you control the assets while you live. Revocable means that you can change it any time up until you die - but not after. Many people find a living revocable trust helps them control their assets during their life, and direct what happens to them after death. In some cases, other kinds of trusts are helpful. But sometimes, other kinds of trusts are useful, too.
For some situations, more complex kinds of trusts are needed. Irrevocable trusts, can't be changed after they are created, but often provide tax advantages or other important protections. Many times irrevocable trusts have a single specific purpose - and they are often created along with a revocable trust, as part of a comprehensive estate plan. There is no set formula for when an irrevocable trust is necessary - the decision requires thoughtful consideration of your circumstances and your future wishes.
HOW DO A WILL AND A TRUST WORK TOGETHER?
There are several parts to an estate plan, one of them being a living trust. Common factors that prompt someone to create a trust include privacy, tax benefits, avoiding probate, and caring for family members with special needs. Estate planning also lets you dictate how your assets will pass on to future generations after your death.
A trust only controls assets that get formally placed into the trust. While many of your assets, belongings, and property can be put into the trust before death, it doesn't make sense to do that for everything. A will is there to provide guidance for those items - or to as a mechanism to put them into the trust at death. And, having both a will and a trust can help avoid disputes among your heirs.
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