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Should I Be Using a Will or a Trust?

Have you ever thought about who you would like to give your money, your home, or that special family heirloom to after you pass away? Most of us have, but have you taken the necessary steps to ensure that your belongings are received by that person or persons?


The two most common methods of transferring your assets to your loved ones after your death are a will or a revocable trust. What is the difference between them, and which one is right for you?


WILL

A will is a written document that allows you to establish how you would like your personal assets to be distributed amongst your family and friends after you have passed away. You can also dictate, within reason, how you would like your assets to be used by the recipient. A will can be changed at any time throughout your life but becomes irrevocable at the time of your death. A will also allows you to designate a guardian for any minor children you may have. Without such guidance in your will, it will be up to a judge to appoint a guardian as they see fit.


Among the biggest advantages to a will is the cost. Generally, a will is cheaper and easier to set up than a trust, as it does not need to be actively managed or funded. Once the will is executed, it is in place until you wish to update it.


One major benefit of a will is that it can be used to designate a guardian for your minor children. While other vehicles such as a trust can help assets transfer to beneficiaries in a cleaner fashion, a will is the only way to appoint a legal guardian without a judge intervening.

Of course, with the lower cost of a will comes some disadvantages. For example, a will does not provide as much control over the distribution of your assets after your death. If your assets all transfer to one beneficiary via will, there is no stopping that person from spending all their inheritance within 12 months. This is especially dangerous for financially irresponsible or younger beneficiaries.


One thing most people don’t realize is that when you pass, your assets will not quickly pass to beneficiaries when using a will. Transferring your property through a will requires the beneficiaries to go through probate court. Probate is not only a time-consuming process, but it also makes your financial affairs part of the public record.


Using a will and the probate process to pass on your assets can be a double-edged sword. Your assets become public record and your beneficiaries may not have access to them when they may need them.



REVOCABLE TRUST

A living revocable trust is a legal entity that is set up to manage your assets while you are alive and transfer them to your beneficiaries after your death. Unlike a will, there is no court intervention required to transfer property to your beneficiaries. One of the major differences between a will and a trust is that a trust can only be used to transfer property that was placed in it before your death.

The most important reason to consider a trust is that it allows you to dictate how and when a beneficiary will receive any money left to them. It can also be used to set up funds for a specific purpose, such as a child’s education. Trusts can be structured in a variety of ways, but if you have intentional desires with your assets, it is best to discuss your goals with a qualified financial advisor or attorney to explore all your options.


Transferring your property through a trust allows you to bypass the time-consuming process of probate court discussed above and it allows for your financial affairs to remain private. Any assets placed in a trust can be transferred immediately to your beneficiaries after your death.

Because a trust gives you more options, attorneys need to spend additional time drafting up the documents. As a result, trusts are more expensive than wills. Besides the initial time, they also require continued management after the initial setup.


As we mentioned earlier, trusts are great vehicles for asset transfer, but do not have any power to appoint guardians for minors.



Summary

​All the elements of your current and desired financial situation should be considered when determining whether a will or a trust is your best option.


In some circumstances it will make sense to have a trust supplemented with a will. For example, a parent with minor children may need a trust to establish funds that are restricted for college tuition purposes, and that same parent will need a will to designate the legal guardian for their children if they pass away before their children reach adulthood.


This article is a general communication being provided for informational and educational purposes only and is not meant to be taken as tax advice, investment advice or a recommendation for any specific investment product or strategy. The information contained herein does not take your financial situation, investment objective or risk tolerance into consideration. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. Any examples are hypothetical and for illustration purposes only. All investments involve risk and can lose value, the market value and income from investments may fluctuate in amounts greater than the market. All information discussed herein is current only as of the date of publication and is subject to change at any time without notice. Forecasts may not be realized due to a multitude of factors, including but not limited to, changes in economic conditions, corporate profitability, geopolitical conditions, inflation or US tax policy. This material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed.


LEGAL, INVESTMENT AND TAX NOTICE. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice.


Copyright 2021. Monotelo Advisors Inc. All Rights Reserved

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