When it comes to planning for the future, you need to know the distinctions between a will and a trust.
Both serve as legal documents that outline the distribution of assets after someone passes away, yet they function differently.
What is a will?
According to CNBC, 67% of Americans do not have an estate plan. A will is a legal document that specifies who a person wants to receive their assets and property after their death. In a will, an individual can name beneficiaries who will inherit their belongings, including money, real estate and personal items. A will allows the testator, the person creating the will, to appoint an executor who will be responsible for carrying out the wishes outlined in the will. A will must go through probate which makes it a matter of public record. It does not go into effect until after the individual dies.
What is a trust?
A trust is a legal arrangement in which one party, the grantor, transfers ownership of assets to another party, the trustee, to manage and distribute on behalf of the beneficiaries. Unlike a will, a grantor can establish a trust while they are alive, and it can continue to operate after their death. Trusts offer flexibility and privacy since they do not go through the probate process.
Which should you choose?
Deciding between a will and a trust depends on individual circumstances and preferences. Wills are typically sufficient for individuals with straightforward estates, while trusts are more suitable for those with larger estates or specific needs, such as asset protection or incapacity planning.
It is important to have an estate plan in place. Knowing how they differ will help you decide between a will and a trust.
