The Difference Between Wills And Trusts—What Parents Need to Know

The Difference Between Wills And Trusts—What Parents Need to Know

Hiranmayi Srinivasan  Tue, August 24, 2021

Estate planning is a crucial part of mapping out your family's future. While there are many different components of an estate plan, wills and trusts are an important part of assuring how your assets will be distributed after your death—and to whom. "When someone dies without a will, their assets belong to their estate until the probate process is complete," says Carolyn Yun, CPA and CFP at Hollow Brook Wealth Management LLC in New York. "To ensure that a person's final wishes are met, it's important to get a will drafted," she says.

A will basically directs what will happen to your property after you die. "Most wills will appoint an executor, which is the person that handles the administrative duties of settling your estate," says Emily Cisek, co-founder and CEO of The Postage, a full-service digital estate planning platform. "A trust, on the other hand, is a legal entity that is set up to hold assets for someone's benefit," says Cisek.

It's a good idea to have both. "People should definitely have both documents—in addition to a power of attorney and advanced healthcare directives," says Jala Eaton, a licensed attorney in California and a certified trust and financial advisor. But there are points where the two differ, that are important to be aware of. Here are the main differences between trusts and wills—so you can be better informed while making your plan for the future.

Everyone should have a will—it's a basic estate planning document that is effective after your death.

No matter what, you should have a will. Again, a will is where you can name your beneficiaries (who gets your assets) and is the only document where you can appoint legal guardians for any minor children you have.

While there are different types of wills, a simple will is a list of your assets and possessions and what you want to happen to them. "These are the easiest types of wills to create," says Cisek. Other types of wills include: a testamentary will, where the beneficiaries receive assets after they meet a certain condition, like age or marriage; a joint will for married couples; and living wills, which dictate what you want to happen in your last days, such as with medical care.

While wills are effective after someone's life, a trust can be used during their lifetime. A living or revocable trust allows the trustor to make changes to it, as they are usually the trustee as well. "A revocable trust provides maximum control over assets," says Cisek. "However, those funds must be reported as income," she adds. The income in an irrevocable trust, on the other hand, can't be taxed—but you also cannot make any changes to it once it's set.

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https://www.yahoo.com/lifestyle/difference-between-wills-trusts-parents-164059212.html