Have you ever heard of a trust fund baby? Of course, you have! Normally we watch shows that have trust fund babies or we know a friend of a friend of a friend who has a trust fund. Many people believe that they must reach a certain status or make a million dollars in order to be “eligible” to create a trust.
While this is a realistic assumption, this belief is false. Truth is, anyone can have a will or trust, and everyone should have a will and trust.
What is a will?
A will is a legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children. If you die without a will, those wishes may not be carried out. Further, your heirs may be forced to spend additional time, money, and emotional energy to settle your affairs after you are gone. To maximize the likelihood that your wishes will be carried out, create what is known as a testamentary will. This is the most familiar type of will; you prepare the document and then sign it in the presence of witnesses. While a testamentary will is likely your best bet, there are several other types of wills such as holographic wills, oral wills (not valid in Texas), pour-
over wills, and mutual wills/joint wills.
What is a trust?
A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. Trusts are established to provide legal protection for the trustor’s assets, to make sure those assets are distributed according to the wishes of the trustor, and to save time, reduce paperwork
and, in some cases, avoid or reduce inheritance or estate taxes.
A trust is a legal entity employed to hold property, so the assets are generally safer than they would be with a family member. Even a relative with the best of intentions could face a lawsuit, divorce, or other misfortune, putting those assets at risk. Trusts also protect assets and direct them into the right hands in the present and in the future, long after the original asset owner's death.
Wills vs. Trust
Here is the easiest way to remember the difference between a will and a trust. A will directs the disposition of your assets after death, while a living trust becomes valid while you are alive. For many years, a will has been the popular choice. Perhaps that is because in books and movies, passing assets to the next generation is always done via a will. In reality, a will is not likely to be the best option for most people. A will involves the probate process, which comes with unnecessary costs.
When you use a living trust, the upfront costs are higher, but no probate is required, which makes it a more affordable option overall. There is one exception. Some states offer expedited and simplified probate if the
estate is under a specific dollar threshold. That number depends on the state. Aside from that exception, you should strongly consider a living trust as opposed to a will.
A living trust becomes valid immediately after you execute documents, and your property is transferred into that trust. It is then up to you to manage those assets. In addition to affordability, which stems from avoiding the probate process, a trust will allow you to control what happens to your assets during and after death. Also, unlike a will, a living trust is not public record.
Furthermore, you can use a living trust regardless of the size of your estate.
Other pluses of a trust include federal and state tax advantages, a better chance of withstanding the estate being contested, and the ability to determine when a small child, grandchild or special-needs dependent will be able to have access to the trust. A trust is a much faster and easier process than a will, and it is more specific than power of attorney on a will. If the trust is funded, the freezing of assets will not be allowed. Be sure to have all assets titled in your trust name.
That includes certificates of deposits (CDs), stocks, bonds, mutual funds, real estate, businesses, or any other assets that you have or may acquire later in life. This will help you avoid probate.
For questions and further clarification about wills or trusts, get in touch with DeRouen Law Firm's estate planning attorney Symone White.
Call our office today at (832) 328-0791 or schedule a consultation online.