While it isn't easy thinking about your last wishes, having a will or a trust can help you avoid confusion over who will inherit your estate when you pass away. It will also provide peace of mind, knowing that all your wishes are being met and that you're doing everything you can to help your family after you're gone.
While both a will and a trust can help you plan for the future, there are very important differences between the two legal instruments.
What is a will?
A will is a document that spells out how you would like your estate to be handled after your death. When formally prepared and signed by witnesses, it can help ensure that your money and assets are left to the heirs you designate. There are also different kinds of wills, ranging from a statutory will to a conditional will. It's important to have a will because if you don't, the state in which you live may determine how your assets are distributed after you're gone. But despite the importance for a will, many Americans don't have one. A study by Gallup found that only 44 percent of Americans reported having a will. Your will becomes a matter of public record after it is probated, but while you're still living, you can amend it at any time. You might want to update your will, for example, if your marital status changes or if you want to change your beneficiaries.
The cost to create a will varies. To make one online can cost anywhere from $20 and $100. By comparison, a lawyer may charge anywhere from roughly $100 to $1,000 to create a will, depending on where you live and how complex your situation is.
What is a trust?
A living trust is a legal document that lists all the ways that you want your assets to be handled after you die. Unlike a will, a living trust goes into effect as soon as you create it, while you're still alive.
Generally speaking, there are two kinds of living trusts. The first is a revocable living trust, which can be changed as your circumstances or wishes adjust during your lifetime. An irrevocable living trust gives you the right to permanently and irrevocably assign your assets while you are living, essentially relinquishing all control. There are only a few specific circumstances under which the terms of a irrevocable living trust can be modified.
Unlike a will, a living trust does not become public record, which means that all your private details (such as how much in assets you have and the ways in which you've decided to distribute them) are kept confidential within the trust.
What are the main differences between wills and trusts?
One of the biggest differences between a will and a trust involves how the property is held. When you create a will, your beneficiaries are named along with the property they are to receive. With a living trust, your beneficiaries are named and the property must be transferred into the trust for their benefit.
Another matter to consider when choosing between a will and a trust is probate. Probate is the legal process that a will must pass through to be accepted as a valid legal document. The process varies depending on the state in which you live, but depending on the situation, it can be time-consuming. Generally speaking, a living trust does not pass through probate, whereas a will can.
Do I need a will or a trust?
While most people should have a will, not all need a living trust. There are many reasons to have a will. For instance, you might use a will to specify your funeral arrangements, designate a legal guardian for your children if they are still minors or minimize family conflict over who gets what assets after you pass. It's worth noting there are other documents including a living trust that can specify these instructions. If your wishes for your estate are fairly straightforward, your will may be sufficient. However, it's a good idea to consult an attorney when making a more complex will or establishing a living trust.
There are a number of special conditions and circumstances that make having a trust a good idea. If you have children or other dependents with special needs or a disability, you might want to consider having a trust because you'll be able to explicitly state your wishes, whereas a will won't allow you to exercise much control over their use of property. There are even special needs trusts that can help be established to outline the care of a disabled dependent after your death.
If you're looking for more information on whether you should have a will or a trust, an attorney specializing in your state's estate laws should be able to offer more assistance.