More than half of American adults don’t have any form of an estate plan.
If you’re one of these people, what’s your reason? Maybe you think that you don’t have any or enough assets. Or you simply aren’t well-informed about the benefits of estate planning.
Well, your reason doesn’t really matter. An estate plan is incredibly important. The consequences of not having one are well-documented.
If you’re ready to create an estate plan, you’ve likely come across things like wills and living trusts. So, what is the difference between a will and a living trust? Do you need both?
Continue reading to learn more about these legal documents.
What’s a Will?
A will, or a last will and testament, provides for the transfer of an estate to heirs or beneficiaries.
Through this legal document, you can spell out your wishes regarding how you’d like your assets (money, real estate, stocks, and other tangible and intangible assets) to be distributed to your heirs. If you’ve got young children (below the legal adult age), a will allows you to appoint a guardian to care for them in the event that you die before they’re adults.
A will comes into force only after your death. It’ll go through probate court.
Now, while a will enables you to note down your wishes, it doesn’t necessarily mean your estate will be distributed according to your wishes. It’s important that a will adheres to relevant state laws, especially with regard to inheritance, or it can be successfully challenged in a court of law.
For example, in most states, children (both minors and adults) are entitled to an inheritance from the parent (s). If you fail to pass down some assets to one of your kids, for instance, they can rightfully go to court and challenge the will.
For this reason, it’s vital to consult an estate planning attorney when creating a will.
What Is a Trust?
A trust, just like a will, is a method of estate transfer. You still write down how you wish your estate to be distributed.
There are different types of trusts, but they generally fall under two categories:
- Testamentary trust
- Living trust
A testamentary trust can only be created after you’ve written a will. A living trust, which can be either irrevocable or revocable, has no such requirement. A living revocable trust can be changed by you (the trustor) as many times as you wish, but it becomes irrevocable after your death.
An irrevocable living trust cannot be changed and must have a trustee, which means you’ll relinquish control of your estate after the creation of this trust.
What Is the Difference Between a Will and a Living Trust?
So, what is the difference between a will and a living trust?
There are notable differences, but the major one is a will goes through probate court while an irrevocable living trust doesn’t. This trust becomes effective immediately, while a will comes into force after your death. For both, though, you need the help of an estate planning attorney.
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