Wills and trust are both tools you can use to transfer your assets to your loved ones after your death. However, there is a big difference between a will and a trust, and it takes a skilled estate attorney to help you navigate the estate planning process in a way that gives you and your heirs the best outcome.
Among the key differences is the fact that a will requires probate and can cost a lot of extra money in court fees, administrative fees, and taxes, while a trust can protect your assets from some of these as well as other risks in ways that a will can’t. In addition, everything that goes through probate will become part of the public record, while the contents of trusts will remain private.
Should I Choose a Will or a Trust for My Assets?
You may well wonder which one of these options you should choose. Most of us are familiar with the concept of wills. You just list your assets and possessions and indicate who will get what after you die. Considering how much we hate to think of the fact that we are all going to die, doing this much seems like taking an important step. We think it should be sufficient when it comes to taking care of our affairs.
When it comes to trusts, on the other hand, most of us don’t feel that we qualify. Trusts are for rich people, we think. We don’t have the kinds of assets that would require a trust. We might also be concerned about how much it might cost to set up a trust. And in most cases, we might be wrong.
Yes, there are people with such limited means that a will could be perfectly sufficient for the purpose of distributing what little they have to their heirs. But it’s unlikely that you are one of them. At the very least, you should consult an estate attorney to find out what would be the best option for you. In some cases, you should also talk to your tax advisor and your investment advisor, as well.
And whether to get a will or a trust is not just a matter of either/or. In most cases, you might be best served by a combination of a will and a trust or even several trusts.
What Should you Know About a Will?
A will is often referred to as the last will and testament. It is a document where you list all your assets and earthly possessions and then specify how they should be distributed to your heirs after you die. You can also specify what percentages go to each beneficiary without listing specific items. You must sign your will in front of witnesses in order for it to be valid.
You can make changes to your will as often as you like as long as you’re still alive and able to make them. The last version of your will is the one that counts in the end, so be sure to sign every single version properly.
You can also include things like who should be the executor of your will and who should be the guardians of minor children if you have any. You should not include your wishes for specific funeral arrangements in your will since your will won’t be read until after your funeral.
Be sure that your will is in a safe and accessible location. You should always keep a current copy with your lawyer. After your death, it has to be filed with the probate court, which will supervise that everything is properly administered. You should know that it will be a public record, so if privacy is important to you, you might opt for a trust instead.
What Is a Trust?
A trust is a fiduciary entity by which you can transfer your assets to the intended recipients. There are revocable trusts that can be changed during your lifetime. These are also called living trusts. The owner of the trust is called the trustor, and the person to whom the assets are transferred is the trustee. In a living trust, the trustor and trustee can be the same person, but in an irrevocable trust, they are not.
Moreover, if you set up a trust for the purpose of protecting your assets, for example, from taxes or from creditors, you have to make it an irrevocable trust. Any living trust will automatically turn into an irrevocable trust when you die.
What Is Probate?
Probate is the legal process by which the will is going to be adjudicated. It supervises the executor and makes sure that all assets are distributed according to the law as well as the wishes of the deceased. It can take months or even a year or more to complete the probate process. There are also significant costs involved. All of these are reasons why many people try to avoid probate as much as possible.
How to Avoid Probate?
The main way to avoid or minimize probate is by putting the assets into one or more trusts and passing them on to the intended beneficiaries that way. In Canada, this works best if the trust goes to the surviving spouse of the deceased.
There are other ways to avoid probate, such as when bank accounts and other assets are held in common, especially between spouses. However, it is important to be familiar with estate planning for Canadians, as the rules are quite complex in Canada, and the tax rates for trust income are much higher than in the U.S. So you should definitely seek out an accountant and tax advisor in addition to an experienced estate lawyer. This will help you avoid making costly mistakes.