Thinking about the end of your life isn’t pleasant, but if you’re over the age of 50, it’s important to get your affairs in order now so that you can take your time in planning. In the next few blog posts, we will discuss the various aspects of end-of-life planning. In this post, we’ll cover estate planning, including wills and trusts.
Both wills and trusts are methods of planning for the transfer of your estate, but there are differences between the two. A will is a legal document that outlines how you want your assets distributed after your death and allows you to appoint an executor, name your beneficiaries and designate guardians for any minor children. In a trust, you transfer ownership of your assets while you are still living by appointing a person or institution, such as a bank or law firm, as a trustee to hold legal title to your property for your beneficiaries.
A will only goes into effect upon your death. A trust becomes effective as soon as you create it. When deciding to create a will, a trust, or both, consider the following:
- Trusts have a tax advantage over wills, and the larger the value of the estate, the bigger the savings in taxes.
- If you have minor children, you will probably need a will to appoint a guardian for them, since trusts don’t usually address this.
- Trusts are more expensive to create and administer than wills. According to MoneyWisdom, trusts can cost upwards of $5,000, while wills average around $375.
- Wills are administered by probate court and are of public record. A trust can be used to avoid probate court and to keep your estate details private.
- A trust can allow more detailed instructions for the use of your estate and can also protect you from creditors and potential litigants.
Personal finance expert Suze Orman recommends having both a will and a trust. “Having both a will and a trust is a powerful way to show your love. It will save your family time and money. And the heartache of squabbles if you were to die and not leave clear instructions on who is to get what.”
For more information on estate planning, check out this article from Investopedia. And before making any estate planning decisions, be sure to consult with legal, tax and investment professionals.