Legal Tips and Resources
When planning your estate, you have two primary options: a will or a trust. Do not make the mistake of thinking that you need to pick one or the other, however. You can use a will for some of your estate and a trust for the rest. Each of these estate planning choices have their own advantages, and the key is to understand the differences so you can know what possessions to include in each. After reading this short guide, you will have a better understanding of what a trust is.
A trust is essentially an agreement between you and a trustee. In a trust, you take on the role of the benefactor and the person who eventually receives your possessions is the beneficiary. After establishing the trust, you will transfer your possessions to the trustee for holding. You will also set a condition on the trust. When whatever condition you set is met, the trustee will transfer the contents of the trust to the beneficiary. When used for estate planning, the condition of the trust will likely be your death.
There are three advantages that a trust has over a will:
- A trust is not subject to taxation
- A trust does not need to go through probate
- You can place conditions on individual items in a trust
Let’s discuss each of these advantages. First, a trust is not subject to taxation, whereas a will is taxed. Most of the time, estate taxes are not very high, but there are there nonetheless. Keep in mind that you will need to pay a fee to the trustee to set up a trust in most cases. Chances are high that the fee will be higher than the amount a will is taxed. However, for especially large estates, this might not be the case.
Second, a trust does not enter probate. Probate is essentially an administrative process a will goes through initially. This means that your trust will be completed faster than a will would be completed. Most of the time, probate only lasts a few days or a week or two. However, if a will is not set up correctly, probate may last months.
Finally, you can set conditions for your possessions. This is the main reason most people choose to set up a trust. As an example, you can gift your children different possessions depending on whether they have finished college yet. The first step toward planning your estate should be to speak with an estate planning lawyer.