What is the difference between a will and a trust?
A will is a written document expressing a deceased person’s wishes, from naming guardians of minor children to bequeathing objects and cash assets to friends, relatives, or charities. A will becomes active only after one’s death. A trust is active the day you create it, and a grantor may list the distribution of assets before their death in it, unlike a will. There are irrevocable trusts, often created for tax purposes, which cannot be altered after their creation, and living trusts, which can be changed by the grantor. All wills must go through a legal process called probate, where an authorized court administrator examines them. This process can be lengthy and potentially contentious if family members contest the will. Trusts are not required to go through probate when the grantor dies, and they cannot be contested.
Do I need both a will and a trust?
Nearly everyone should have a will, but not everyone most likely needs a living or irrevocable trust. If you have property and assets to place in a trust and have minor children, having both estate-planning vehicles might make sense.
At the very least, adults should have a simple will. Here are some reasons why you may want to consider a revocable living trust and a will:
- To maintain the most control over your assets after you die
- To avoid the cost and hassle of probate
- If you or your spouse has children from another relationship
- With proper planning, trusts can reduce federal or state estate tax
- Control the timing and amount of inheritances to children or adults
- Maintain privacy as your estate is settled
A revocable trust isn’t necessary for everyone. But trusts aren’t just for the ultra high net worth, either.
What is probate?
Probate is the process of winding up the affairs of the person who has died (the decedent), and includes asking the court to appoint a personal representative (sometimes called an “executor”) of the decedent’s estate, and to determine if there is a valid will. An “estate” is the collection of real and personal property belonging to the decedent at the time of their death, as well as any debts they owed. In Utah, probate is required if: 1. the estate includes real property (land, house, condominium, mineral rights) of any value, and/or 2. the estate has assets (other than land, and not including cars) whose net worth is more than $100,000.
Do I have enough assets to benefit from a trust?
The minimum net worth necessary for a single person to consider using a Revocable Living Trust will vary from state to state. For instance, in Florida estates valued at $75,000 or less are considered small enough to be administered through a simple summary probate process. If the value of your assets is over the minimum threshold in your state, then a formal, time-consuming, and costly probate administration will be required instead.
What kind of assets can I put in a trust?
Different types of assets can be put into trust during your life, though some are subject to state laws:
- A home, vacation home, or rental property (read more about the pros and cons of putting a house in a trust)
- Savings or checking accounts
- A brokerage account with stocks, bonds, ETFs, and mutual funds
- Ownership in a closely-held business
Other types of assets can only flow into a trust after death:
- Retirement account, if the trust is a beneficiary
- Life insurance, if the trust is a beneficiary
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