A recent survey established that about 55% of Americans lack any form of estate planning. Lack of knowledge about the estate planning process is a major reason for locking out people from planning future generations’ utilization of their assets.
For instance, do you know the difference between a will and a trust?
Most people are familiar with the idea of writing a will. The same cannot be said about the types of trusts that exist.
A key step in planning your future and your generation is understanding the differences between trusts and wills. That’s the easiest way to figure out what works best for you.
This guide will help you distinguish between the two.
The Tax Benefits
Everyone would like to shield their dependents from taxes when transferring assets to them. All types of wills are subject to the applicable taxes. This, therefore, means your dependents won’t enjoy any tax benefits when you use wills in the estate planning process.
The types of trust you settle on, on the other hand, will determine if you’ll enjoy tax benefits. Revocable trusts are treated the same as wills when it comes to taxation. Irrevocable trusts do enjoy some types of tax benefits that a real estate attorney can help you understand.
Time It Becomes Enforceable: Key Difference between a Will and a Trust
The will that you draft becomes legally enforceable only once you die. A will contains specific instructions from you outlining how you want to share the assets listed therein among your beneficiaries. It also spells out who should be the guardian or custodian of your children after your death.
Trusts become effective and legally binding once you draft and sign them. You can make changes to a trust during your lifetime without any legal ramifications. Your children may start benefiting from a trust after fulfilling its conditions, even if you are still alive.
Wills are subject to a process known as probate. This process necessitates that your beneficiaries file the will with a court once you die. Then the court will initiate a process to implement your wishes as per the instructions from the will.
A trust is not subject to the probate process. The trust’s beneficiaries can claim the right to the assets that you bequeath them once you die without involving the court.
Anyone from the public can access your will once you die. Courts make wills accessible to the public once beneficiaries file. It’s nearly impossible to maintain secrecy with a will, since it’s mandatory to file it in court for execution.
Trusts offer more privacy to the parties involved. Only your beneficiaries and the trustee are entitled to access the contents of the trust once you die. It’s the discretion of these parties to decide if other members of the public can view the trust or not.
Plan for Your Future Generation
The time is right to start planning how to distribute your wealth now that you understand the difference between a will and a trust.
Estate planning is key to keeping your assets in the hands of those who need them the most – your dependents. Note that you can use both a will and a trust in the planning process.
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