Types of Trusts vs Wills: A Comparison with Chart
Different trusts have different purposes. Selecting the right type of trust for your particular circumstances can be tricky. We’ve put together a basic guide to help you get an overview and compare benefits. We’ve also included details about the purpose and role of a Will.
When assets are put into a trust they belong to the trust, not the trustee, and are subject to the terms of the trust. The terms of the terms of the trust are determined by the person who creates the trust, who is sometimes called a grantor or settlor. The trustee is given control or powers of administration of property in trust with a legal obligation to administer it for the specified purpose. The person who receives the benefits of the trust is the beneficiary. In comparison, a basic will simply states who will receive specific assets, who is responsible for managing the estate and implementing your wishes, and who will become the guardian for underage children. A trust is meant to complement a will and allows the trustmaker to implement their wishes at the chosen level of detail.
This type of trust is created as part of a person’s Last Will and Testament and but takes affect after the person’s death. This type of trust can help manage asset for your beneficiaries, but does not avoid probate and does not maintain privacy.
Revocable Living Trusts
Created during the lifetime of the grantor, a revocable trust can be changed or revoked entirely. This trust type is also referred to as “inter-vivos” or a “revocable living trust” as it created in the grantor’s lifetime. As long as ownership of assets are transferred to trust by the grantor in the grantor’s lifetime the assets are not subject to probate proceedings, which can result in significantly faster distribution of assets to your heirs. A revocable trust, however, is not useful for protecting assets from creditors or taxation. This type of trust protects your privacy, and gives you the option of selecting someone to manage your affairs without court intervention should you become incapacitated. Depending on your situation this type of trust can also save you money. Click the following for more on revocable living trusts.
An irrevocable trust cannot be modified or revoked after it is created, except in very limited circumstances. After an irrevocable trust is created, the assets in the trust assets cannot be removed by the trustmaker. Accordingly, this property is not included in your estate’s value for tax purposes. There are dozens and dozens of types of irrevocable trusts made for different purposes. The two most common reasons to make an irrevocable trust are 1) to protect property, and 2) to reduce taxes. Click the following to find out more about irrevocable living trusts.
Last Will and Testament
Also known as simply a will, this is a document in which you can name recipients for your property, name guardians for your children, name managers for children’s property, name a personal representative (executor) to handle your estate after death, and instruct how debts or taxes should be paid. Although a trust can provide greater control and a wide variety of unique advantages for your family, everyone still needs a will.
Advance Directive for Health Care (formerly, Living Will)
An Oregon advance directive for health care was previously called a living will. It tells your doctor which treatments you do or do not want if you become incapacitated. It also names a person to decide what efforts should be employed to help keep you alive should you face a life-or-death situation and whether or not you wish to be kept alive in certain situations by artificial means.
Wills, Revocable Trust, and Irrevocable Trust Comparison Chart
|Effect||Revocable Living Trust||Irrevocable Trust||Will|
|Defers or Reduces Estate Tax||Depends on structure||Depends on structure||Depends on structure|
|Protects Assets From Your Creditors and Lawsuits||Usually Not||Usually Not||No|
|Protects Inheritance From Your Heirs’ Creditors and Lawsuits||Usually Not||Usually Not||Depends on Structure|
|Names Beneficiaries for Property||Yes||Yes||Yes|
|Leaves Property for Young Children||Yes||Yes||Yes|
|Reduce Chance of Court Dispute||Yes||Yes||No|
|Medical Wishes||Yes, with Advance Directive||Yes, with Advance Directive||Yes, with Advance Directive|
|Name Guardians for Children||N/A||N/A||Yes|
|Name Managers for Children’s Property||N/A||N/A||Yes|
|Instruct How Debts or Taxes Should be Paid||Yes||Yes||Yes|
|Name an Executor||N/A||N/A||Yes|
Frequently Asked Questions:
Should I setup a trust or a will?
Everyone should have a will. Setting up a will is generally straightforward, low cost, and something we recommend you do immediately. We also recommend you set up an Advance Directive to address your medical wishes. As to a trust, it depends on the particularities of your situation. The chart above simplifies the purpose and benefits of a trust, but there are many trust types, and each can be favorable in specific situations. With a short consultation we can generally recommend if a trust makes sense for you. Something to consider is, unlike with a will alone and probate, a trust is paid for upfront. If a revocable trust is determined to be a good fit for you and the upfront costs are acceptable this can be an excellent long term choice.
Does it really matter if I do this now or later? Why now?
It really depends on your situation. Our clients have expressed experiencing a peace of mind after creating an estate plan. Certain parts of an estate plan can be uncomfortable to think about at first. However, being able to think everything through in advance and then pave the way for simplified estate administration can put one at ease. It may be perfectly reasonable to get a will and living will done now, and think about a potential trust if your situation warrants it in the future. Putting things off indefinitely, of course, is not recommended. Without a basic will the probate process can create undesirable results for family. If you’d like more information don’t hesitate to reach out to us or continue exploring our website.