Planning an estate can be confusing for a lot of reasons:
- The immediate grief brought by the loss of a loved one
- The panic to ensure everything is in order for the rest of your family
- The difficulty in locating all pertinent information
Aside from that, the legal language often comes across as complicated – What’s a power of attorney? What does an executor do? So we want to make sure you understand the difference between a trust and a will.
A WILL IS…?
A will is a legal document that lists the items in your estate and declares who should get specific items, according to your wishes.
A TRUST IS…?
A trust provides information on who should get a specified set of assets or money, with detailed instructions and conditions.
So for example if you are leaving money to your child, you may appoint a trustee to manage their finances until they are of an age to manage it responsibly (for example, 28 years of age). The trustee could also manage the distribution of how and when the money should be given to them, until they are of an age to utilize these resources maturely.
A trust that is contained in your will becomes effective upon your demise. Your executor usually becomes the trustee of the will, and will hold and manage the assets belonging to the trust for the benefit of the beneficiaries.
If you do wish to set up a trust, you should work with qualified professionals, lawyers, and accountants.
MAKING SURE THE DIFFERENCE IS CLEAR
A trust does not replace a will. A will is the quintessential document of your estate plan, wherein you name an executor and legal guardians for your children (if necessary). Without a will, the province where you live will decide on how your property and assets are divided – the outcome could end up being unfair to the people you are trying to protect.
Once a will is set up then you can proceed to build a trust. Remember that wills are prone to probate. That means people/businesses seeking payment, or disgruntled family members could challenge the document during probate. Whereas a Trust, which is more complex, can bypass the probate and applicable taxes, if set up prior to your passing.
A trust within a will determines when and how the beneficiary will receive a portion of the Estate. Trusts can serve many purposes in a family’s financial, retirement, tax, and general Estate planning. Trusts can ensure that assets are professionally managed across generations and distributed in line with the grantor’s intentions.
Trusts can, among other things:
- remove assets from one’s Estate,
- carry out charitable intent,
- reduce income taxes,
- protect beneficiaries from spendthrift propensities,
- protect assets from becoming marital property in a divorce,
- protect assets from creditors,
- provide lifetime income to one or more beneficiaries, while
- providing the remainder interest to another generation of beneficiaries.
Finally, trusts can also provide privacy and confidentiality in the transfer of wealth as trusts avoid probate, and the terms are held confidentially.
The content on the ReadyWhen Platform is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.