Many people today work hard to achieve financial freedom and enjoy a happy retirement which is a decent life goal. However, some other people are working hard for other bigger plans like building enough wealth that can be passed down to younger generations. In truth, there has never been a better time to build generational wealth than today.
The opportunities and tools available today for investments are almost endless and for those who can take advantage of them, there’s really no limit to how much can be made. With technological advancements across different sectors and industries, we’ve seen more millionaires and billionaires in the last decade than in the last century. Visit https://www.visualcapitalist.com/ to learn more.
If amassing wealth for your kids and the younger generation is one of your life goals, it is important to know that generating this wealth is only the first step. The next crucial step is ensuring that it is successfully passed down to them in the most efficient and stress-free way possible. This is the part that gets tricky which is why you need a credible attorney to guide you along the process.
There are two main ways by which wealth can be passed down and they are will and trust. In this article, we’ll go over both, examining the differences between each.
What is a Will?
The most common type of will is the testament or testamentary will. It is a legal document that states how a person wants their affairs and assets distributed after they die. It can include just about anything from instating a guardian for one’s minor children to describing how one’s funeral service should be held and articulating exactly how one’s wealth should be distributed among beneficiaries.
While there really aren’t any restrictions to what can be included in a person’s will, there are a few legal requirements that a will must meet. For instance, the person writing the will, that is, the testator, must be an adult of sound mind. The testator must also elect an executor who will execute the will after the death of the testator.
Typically, what you’ll find in a will includes property, family heirlooms (if any), the contents of safety deposit boxes, vehicles, and a list of other assets and investments that can be distributed to beneficiaries.
If you die intestate, that is, without a will, what happens to your minor children and assets will be determined by the intestacy laws of your state. Very often this process leads to long court battles between family members.
We should also mention that a will passes through probate court. In this process, a court oversees the process of distribution of assets as stated by the deceased in the document. If family members are unsatisfied with the will, they can contest it. This is one of the downsides of a will. Click here to learn more about probate. Other types of will include joint or mirror, pour-over, handwritten, oral, pour-over, and living will.
What is a Trust?
A trust is simply a fiduciary relationship whereby a person, also known as a grantor, gives authority to a trustee to handle their assets for the benefit of their beneficiaries. Unlike a will, a trust allows you more control over the distribution of your assets among loved ones. For instance, and this is quite common, a grantor can declare that a named beneficiary only access the trust if they attain a certain legal age or graduate from college.
Unlike a will, assets in a trust are passed outside of probate court and the process can be completed rather quickly. Also, a trust becomes active immediately after it is signed and funded by the grantor, whereas a will goes into effect only after the death of the testator.
Differences Between a Will and a Trust
Both are important estate-planning tools that have specific areas where they shine. The following are some of the differences between them:
Probate and Privacy
A will must go through probate court which makes it a public record and document. What this means is that anyone can access the details of your will, compromising the privacy of your assets which could ultimately put beneficiaries in danger.
Aside from that, probate can be a lengthy process that involves hefty attorney and court charges that can easily eat into the value of your assets. If you die intestate, the road to distributing your will becomes a lot rockier.
If you seek to keep your personal financial affairs private, a trust could be the better solution. Not only is probate avoided but the transition of assets to beneficiaries is usually smoother in a trust.
Contestability
It remains a fact that wills are contested a lot more than trusts. This is because the former falls under testamentary law while the latter falls under contract law and contract law is held to a stricter standard than testamentary law.
Also, a trust takes effect the day they are signed and funded and can be updated over the course of the grantor’s life. On the other hand, most wills are written at one point in a person’s life leaving it susceptible to being contested by family members on the grounds that it may be outdated.
Another common argument is that the testator may not have been of sound mind at the time or that they have written it under someone else’s influence. But trusts establish a separate legal entity and require an attorney because of how complex they are to set up. Both of these facts attest to the validity of a trust. You can visit a website that is focused on estate planning to learn more.
Cost
Trusts are more expensive to set up and manage because they require a lot of complex paperwork. But considering the cost of an attorney and court charges that could be very costly if a will is contested, the upfront cost of setting up a trust could be a wise compromise.
Final Thoughts
Many people are often faced with the dilemma of choosing between these two estate planning tools, and quite frankly, it can be a difficult choice to make. That said, carefully considering the pros and cons of each, including taxes and so on, could help with making the right choice. But there are so many intricacies to each that it only makes sense for one to seek professional legal counsel.
