While some might think that a will and a trust are interchangeable, any financial advisor will tell you that there are crucial differences between the two. Whether transferring assets, planning for retirement, or making sure your affairs will be taken care of after you are gone, it is important to be aware of all the options one can use for transferring assets.Living Wills and Living Trusts
A living will doesn’t involve transferring assets. It is a medical document that indicates your specifications of treatment if you become incapacitated and can no longer relay this information yourself. This may involve power of attorney, life support options or advance directives. If you are aware you are getting sick, you may also use a living revocable trust. In a living revocable trust, you can appoint yourself a trustee until you are no longer capable of making decisions for yourself, at that point your power of attorney succeeds to your trustee.
Transferring Assets through Trusts and Wills
Since a will only goes into effect after you die and a trust takes effect as soon as it is made, it is important to decide the time frame in which you wish to transfer your assets. Trusts need to have their assets transferred in the beneficiaries name and wills can transfer any asset that is in your name when you die. Make sure to have a financial advisor to inform you of taxes attached to wills and trusts. For instance, Idaho has no estate tax, but Washington has an estate tax of 20%. Idaho is not the only state without an estate tax – 34 other states also have no estate tax.
Probate Differences
The other main difference is that wills must go through probate and trusts do not. Wills become public and a court must oversee the execution of it. This process can take weeks or even months to make happen. Trusts, on the other hand, can remain private and do not need to go through the court system. Be sure to get a recommendation from a financial advisor on whether a will or trust is right for you.
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