If you or a senior loved one is developing an estate plan, you are likely familiar with the terms will and trust. While most people have heard about these types of estate planning, many struggle to understand their differences.
We created this quick overview to help you learn more.
Understanding the Similarities and Differences between a Will and a Trust
- Effective date
One of the differences between a will and a trust is when it goes into effect. A will becomes effective at the time of death. A trust, on the other hand, becomes active immediately after it’s signed.
A trust can be advantageous because it considers circumstances that can occur while the person is alive. This includes mental disabilities like Alzheimer’s or other health issues that can cause incapacitation.
- Protection from probate
A will and a trust both control the disbursement of your assets. A will must go trhough probate, a process where the court distributes the assets according to the terms of your will. A trust is not required to go through probate.
- Handling of property
To leave property through a trust, the grantor (the person creating the trust) must transfer it into the trust. A living trust can manage and distribute any property that it was funded with. For example, if you transfer your life insurance policy and jointly owned property into the trust, it can legally govern and distribute them according to your wishes.
- Minimize tax obligations
One advantage a trust has over a will is that it helps to minimize the total tax obligations of the estate. While it can be expensive to set a trust up initially, that cost can be more than offset by the tax savings.
More Differences between Wills and Trusts
- Naming an executor/trustee: An executor is a person who oversees any remaining financial obligations after a person’s death. A will allows you to name an executotor. A trustee manages the Trust. In most cases you will be the trustee and upon death or incapacity a successor trustee will take over.
- Ease of creating: A trust is longer and more comprehensive than a will, and it requires you to transfer your property. A will is typically less complex and only requires two witnesses in most states.
- Naming guardians for children: Both a will and trust allow you to make provisions for your minor children. In both cases, a court would need to approve the guardian. A trust allows you to instruct the trustee on how and when to distribute the assets. For example, the interest can be used to care for the children and the principle is distributed when the children reach a certain age. A will simply holds the assets until the children are adults.
Creating an Estate Plan That Meets Your Needs
Creating a will is a necessary part of any estate planning process. Whether you need to include a trust depends on your personal situation. At Heritage Senior Communities, we always recommend seniors and families seek help from a professional when creating legal documents. A lawyer with estate planning experience can help you develop a plan to ensure your assets are distributed according to your wishes.
Heritage Senior Communities
Heritage Senior Communities offers several senior living options throughout Michigan including assisted living, independent living, specialized dementia care, and respite care. Contact us for more information.