Trusts and wills are two of the main documents that people use to leave assets to their heirs. With either one, you can determine how you are going to pass your wealth on to the next generation.
However, along with the similarities come some very significant differences in exactly how these goals are accomplished. It’s important to know what these differences are and how they are going to impact your estate planning.
A trust is an account
A will is generally just a document stating your wishes after you pass away. It can be as simple as telling your heirs that you want them to evenly divide your assets.
But a trust is more of an account that you create in advance. You can then fund that account by putting some of your assets into it, and they are held by the trust. You also provide documentation about how that money is supposed to be distributed. In this way, a trust can give you a bit more power over how the money is used.
For example, if you want to make sure that your heir doesn’t have any trouble paying for a college education, you could create a trust that says the money within the fund can only be used for college expenses until they graduate. Another option could be simply to say that the heir gets to access the contents of the trust at a certain age – such as 30 years old – if you don’t want them to inherit too soon. A will doesn’t give you the ability to make these types of stipulations.
It can happen while you’re still alive
One difference that this creates is that some trusts can become active while you’re still alive, and so the assets don’t count as being actively part of your estate. For example, maybe you have an heir who is 15 years old and you create a trust saying that they can inherit the money when they are 30. Even if you are still alive, if your heir turns 30, then they take over control of that trust. A will, on the other hand, doesn’t go into effect until you pass away.
Both of these tools can be very useful as long as you know what legal steps to take to use them properly.