It’s Probably Time You Had a Will, and Maybe a Trust

At this point in your action plan, your accumulated assets, family situation, or other factors may make it a good time to set up a will, and possibly a trust as well.

There are different types of wills and trusts and it might be good to get professional guidance depending on the complexity of your situation. But this article can help you understand the basic components and provide guidance on next steps.

Definition of Will & Trust

A will is a legal document that goes into effect only once you are dead. It lays out wishes for your assets (including financial assets, valuables etc.), care of minor children, funeral wishes and more.

A trust is in effect the moment you sign it. There are different types of trusts and they can be used in a variety of ways. But at its core, it is a legal arrangement where a “trustor” (e.g. you) gives a “trustee” (which could also be you or someone else you appoint) the right to fulfill the wishes set out in the arrangement, typically by moving assets from the trust to beneficiaries (e.g. your children etc.).

You’ll often hear reference to a “Living Revocable Trust.” “Living” is an indication that the document applies while you are still alive. “Revocable” is an indication that the trust can be modified while you are alive.

In contrast, with an “irrevocable” trust you essentially remove assets from your possession to be granted to another party at a set date. Additionally, once the irrevocable trust is set up, you lose the right to change it. The main benefit of this is that it can reduce or eliminate certain types of taxes. If you believe an irrevocable trust may be a good fit for you, we would recommend seeking professional advice.

For most a “Living Revocable Trust” can provide the right balance between flexibility and specificity. Both are important when determining what should happen with one’s estate.

Difference Between a Will and Trust

There is overlap between what a will and a trust can do. But broadly speaking, trusts are good for dealing with large assets like property or other significant financial accounts. Wills detail specific wishes for what happens when you die. Wills are generally simpler to set up and are essential for most people. However, they have drawbacks (see below) when dealing with significant financial assets. Trusts are more complex to set up but can provide more specificity, reduce fees and taxes at death, and eliminate a waiting period to transfer assets after you die.

One major drawback for a will is that it can be challenged in court and become part of the public record. Trusts by contrast generally cannot be challenged in court and the details are private.

Additionally wills must go through a process called probate. This process usually results in months-long delays for passing assets on to heirs and also results in fees.

	Challengeable in court?	In the public record?	Able to be modified?	Can determine funeral wishes?	Best for detailed inheritance rules?	Determines guardianship for children?
Will	Yes	Yes	Yes	Yes	No	Yes
Living Trust	Not generally	No	Yes	No	Yes	No

Who Needs a Will?

If you have few financial assets, no children, are not married, and few preferences for a funeral or memorial service, you may not need a will. On the other hand, if any of the following are true, you absolutely should have a will.

• Minor Children – A will is where you indicate who should take responsibility for your minor children in the event you and your spouse should pass away. If you don’t, the state will appoint someone and it may not be the person you would have chosen.
  

• Children of Any Age – If you have thoughts about how you want your assets distributed amongst your children, you need to put it in a will. This is even more important if you have children from a previous marriage and don’t want all the assets going to a living spouse who is not your childrens’ parent.
  

• Positive Net Worth – Any time you have a positive net worth, you have assets. Unless you want the state to decide how those assets should be distributed, you’ll want a will in place to make your wishes explicit.

Who Needs a Trust?

Since there are many benefits of trusts, it’s easy to argue that many people should have one. But since they are a little more tedious to set up and maintain, the guidelines below may be useful.

• Significant Assets – Some say if your assets are $100,000 or more a trust is a good idea.

• Property – If you own property, placing it in a trust can be useful, particularly if you own property in different states.

• Extended Family – if you have children from a previous marriage or you simply want more control over who in your family gets what, a trust can help make that more clear.

• Business Owners – if you own a business, a living trust ensures business debts don’t fall on family members.

The above list is not all inclusive but it should help you determine if a trust is worth further consideration. Put simply, a trust can make the process of dividing your assets more clear, timely, and less painful for your heirs.

Action

Now that you have a better idea of what wills and trusts are, add the tasks to your action plan if they’re right for you. These tasks will guide you through the options for creating them, both online and offline depending on your needs.