Even when everyone in the family grows up and gets along, settling an estate can bring back old sibling battles. It is even more likely if there are large sums of money or valuable property at stake. This makes having a well-prepared estate plan necessary and making those plans clear to family members long before they are needed.
A recent article from The Motley Fool, “Living Trust vs. Will: Which Is The Best Way to Pass Inheritance to Your Family?” explores how best to prepare for the future.
A will, also known as a last will and testament, instructs the executor of your estate how to distribute assets to heirs after your death.
A trust allows you to transfer assets at any time—including while you are still living—however you want, whenever you want. A trustee is the person named in the trust who is responsible for administering the trust. You can protect your children from mismanaging their inheritance with a good trustee and a properly prepared trust.
One of the biggest differences between a will and a trust is that the will takes effect only after you die.It also usually requires review and approval by a probate court. A trust is funded while you are living and does not go through the probate process.
Many people use both a will and a trust for their estate plans.
The will is best created by an experienced estate planning attorney who knows the estate and tax laws of your state. Wills are also used to name your executor and appoint a guardian for minor children. If your children are young, you want this in your will. Remember that when wills go through probate, they become part of the public record. As a result, anyone who wants to can read your will.
Trusts fall into two main categories—revocable and irrevocable. The difference is as it sounds; the grantor can change the revocable trust after it's created. Irrevocable trusts can’t be changed once established, although some states permit what is known as “decanting”—pouring the contents from one trust into another. Your estate planning attorney will know if your state permits this.
One benefit of a trust is privacy. The trust doesn’t go through probate, so no one but the trustee and, depending on the trust, the beneficiaries, know what is in it. Assets in the trust are also distributed as directed in the trust, so they go directly to beneficiaries. There is no court involvement.
In addition, when assets are placed in the trust, they are owned by the trust and not the person who created the trust (the grantor).
Whether you are beginning to plan your estate or updating an existing plan, your estate planning attorney will help you understand your options, so you can create a plan best suited for you and your family.
Reference: The Motley Fool (July 7, 2023) “Living Trust vs. Will: Which Is The Best Way to Pass Inheritance to Your Family?”