Which is Better, a Will or a Trust?

As you take your first steps towards estate planning, you may begin to wonder whether it’s wiser to bequeath your estate through a will or a trust. After all, both processes allow you to pass assets down to your descendants. However, wills and trusts do not guarantee the same legal and financial protections. Therefore, be sure to research both before settling on a final decision.

A will directly spells out who receives your assets when you pass away. Your estate then passes into probate where a court rules on the validity of the will. A trust, on the other hand, does not have to go through probate, allowing you to save time and money on court fees and rulings.

Continue reading to understand how a will and a trust compare, what sets them apart, and which of the two is better. For more advice on setting up a trust, reach out to Sim Gakhar in Ontario, Canada.

Wills vs. Trusts: A Comparison

Both wills and trusts are established to guarantee that your estate is protected and passed down to your rightful heirs. Under current Canadian law, it’s typically easy to pass your estate to a spouse but passing assets down to your next generation can sometimes hit a few roadblocks. These two processes help smooth things over.

Wills and Testaments

A will, or—more formally—a testamentary will, is a legally binding document that specifically delineates who receives your property, wealth, and assets after you die. Recipients can include your children, spouse, friends, distant relatives, and even charities. Wills typically include a list of information along with the desired recipients, including:

A detailed explanation of your burial wishes
A list of all assets, including properties, investments, and family heirlooms
A list of all debts
Last words or farewells

Wills essentially act as a direct estate transfer from one person to another. They are legal transactions that must be verified by the court and, as a legal transaction, transferring your estate through a will establishes your assets as part of the public record.

Wills also allow you to disinherit your children if you deem them unfit to oversee your estate. If you wish to disinherit a child, speak with an expert who can explain the local provincial rules regarding disinheritance.

If you pass away without a will and testament, your assets will be overseen by the state and distributed according to a specific formula set by the court. You may have to pay taxes on your estate, depending on its total value.

Trusts

A trust is a fiduciary relationship that allows you to transfer the responsibility of your estate to a third party. That third party is then responsible for distributing your estate according to the terms of the trust. Trusts can be established in one of two ways—living and testamentary trusts.

Living trusts are created before your death and are revocable under certain circumstances. They allow you to transfer your estate after you die but the terms of the trust can be changed as long as you are alive and you remain the proprietary owner of the trust. After death, the trust then takes effect and begins transferring your estate outside of probate court.

Testamentary trusts must be declared prior to death but cannot come into effect until after you pass away. They must include a specified trustor, trustee, successor trustee, and beneficiaries. As with living trusts, testamentary trusts allow you to pass assets on to an heir without going through a probate court.

Wills vs Trusts: The Main Differences

First and foremost, trusts keep your descendants out of probate court. Depending on the size of your estate, your family and heirs could spend weeks, months, and even years in probate court, fighting to access an estate that’s rightfully theirs. By the time your estate escapes probate, it could diminish by as much as 3-5%.

Probate court was specifically designed to investigate your estate and settle wills, conservatorships, trusts, and guardianships. After you pass away, the court will examine all of your documents, assets, and debts, and determine how the estate should be divided, based on your wishes and financial obligations. However, as with all court proceedings, probate can take time and effort, all of which cost legal fees.

Therefore, although a will specifically delineates who should receive your estate, it can get caught up in the backlog of other legal proceedings and leave your family without access to your estate.

Wills vs Trusts: Which is Better?

If you’re hoping to transfer your estate quickly and seamlessly, a trust can expedite the process and keep your family out of probate court. Additionally, trusts allow you to keep your assets private, whereas a will establishes your estate as part of the public record. Therefore, if you’d prefer to keep your investments private, we recommend establishing a trust.

This isn’t to say that wills are useless, though. If you wish to name a guardian for your child or disinherit a child entirely, wills are more suitable. Additionally, wills are the ideal legal document for expressing your final wishes for burial and any last words of farewell. Even if you establish a trust, we recommend also writing a will to cover these final responsibilities.

You are legally allowed to establish both a will and a living trust. They are separate legally binding documents that—99% of the time—do not interfere or trump the other. However, if your will and trust come into conflict, your trust will most likely override the will.

Do You Have to be Rich to Set Up a Trust?

Trusts often have an image of only belonging to the super-wealthy. This is entirely fictional. Even average middle-class families can establish a trust to pass on their estates to their descendants. Although trusts are more expensive than wills, they are still well within the price range of most average Canadian families. Speak with an advisor today to learn how you can establish a trust.

Conclusion

Estate planning doesn’t have to be so hard. Contact Sim Gakhar in Ontario, Canada to start setting up your own living trust. Sim is a licensed insurance agent and investment advisor who can guide you on how to plan for your future and prepare for the next generation. Don’t leave your estate lost to probate court! Contact Sim and found your trust today.

https://www.investopedia.com/articles/personal-finance/051315/will-vs-trust-difference-between-two.asp

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