Picking a Trust vs a Will: 5 Differences

You will need to understand how each option is enforced when deciding between a trust vs a will. These are, in actuality, two very different ways to provide for the dissemination of your assets after your death. The key difference involves ownership, and the other differences all stem from this basic departure.

1 - Ownership of Assets

When you set up a trust, the trust becomes the official owner of your assets. You will appoint a trustee to oversee these assets and the behavior of the trust itself. There are rules for who may act as a trustee in most states, such as an accountant or attorney. You have to move your assets over to the ownership of the trust during your lifetime. If you establish a will, you retain ownership of your assets until the day you die. When you die, you must list individual beneficiaries on each of your assets, and ownership will pass to them.

2 - Action Upon Death

Since you own your assets until death with a will, the process of transferring ownership must begin upon your death. Typically, a will must go through probate in order for this to occur. Probate is a process used to verify the contents of a will. A judge will determine if the will was legally formed, if all assets have been listed, the value of the assets and if the plans you made for passing them down were additionally within the law. Your will executor will carry out the process of answering these questions. With a trust, any asset has already been verified and passed on to the trust, and probate will not likely be necessary.

3 - Disinheriting Individuals

If you plan on "cutting someone out" of your will, good luck. Most states render it impossible to disinherit any children under the age of 18 as well as your spouse. In fact, your spouse will be awarded anywhere from 30 to 50% of your estate upon your death unless other plans have been made in a pre or post-nuptial agreement. You will have to name all other beneficiaries for your personal assets to prevent your spouse from additionally taking your share. A trust can help this process by making the handing down of your portion easier. However, even with a trust, it is nearly impossible to disinherit a spouse.

4 - Taxes

Generally speaking, setting up a trust offers certain tax benefits over passing down assets directly with a will. The trust will hold assets until the time the trustee releases them. As a result, they will be taxed independently as income to your beneficiaries. A will passes down all inherited assets at once, and this can lead to a great tax burden at the time of death.

5 - Cost

It seems that a trust is a better option, so why don't more people use them? The answer is cost. The cost to set up and manage a trust is much higher than the cost to execute a will. You will have to pay your manager while you are still alive to manage the trust. You will also have to pay fees to register the trust in the state where it is incorporated.

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