For many people, choosing between the creation of a will and a trust is complicated. Wills and trusts are quite different from each other, and each planning strategy has its own advantages. To make the best decision possible, you must consider both options and compare them to your own estate planning objectives.
A will is a document an individual creates before his death. In this document, the creator designates another individual to manage his estate after he dies. He also lists beneficiaries that will receive his property, and he gives instructions for dividing the assets. A trust is a separate legal entity an individual creates to maintain assets for a specific time, or until a certain event occurs, such as death. After creating the trust, the individual may transfer ownership of his assets to the trust. When a trust is used for estate planning, the individual also names another person to control the trust's affairs after his death, and he includes instructions for the distribution of the trust's assets.
Probate is a legal process established by the state in which the court oversees the administration of a deceased person's estate. Each state has its own probate laws, but most states specify that estates with values over a set minimum must go through this process. If an individual uses a will for estate planning, all assets included in the will must go through probate, which means they will be a matter of public record. However, assets included in trusts are exempt from probate proceedings and pass directly to beneficiaries according to the terms spelled out in the trust.
In most cases, it costs much less to prepare a will than it costs to establish a trust. However, trusts can help an estate avoid probate proceedings, which can also be expensive. While a will becomes public record when the creator dies, a trust remains private. If creditors or beneficiaries disagree with the provisions of a will, all disputes must go before the probate court before a predetermined date. Conversely, creditors and beneficiaries who dispute the provisions of a trust can file a claim at any time.
Most trusts used in estate planning are revocable living trusts, which means the conditions of the trust can be changed during the creator's lifetime. However, an individual can also create an irrevocable living trust to hold his assets, which cannot be altered. Like revocable trusts, irrevocable trusts avoid probate but cost more to create than wills. However, creditors cannot typically attach to assets in an irrevocable trust.
Choosing between a will and a trust is a personal decision. In general, individuals with large estates may benefit from creating a trust to avoid probate costs. On the other hand, individuals with small estates that would avoid probate on their own can save money by creating a will instead.
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