Carl Nofuente is an estate planner and a certified financial educator. What is the difference between a will and a trust? If you die or become incapacitated without a will, it will enter something called probate. It takes time and money to get an estate out of probate to release the estate. A will does not keep it out of probate but does designate specifics of how to divide up the assets. A typical fee to release an estate from probate is approximately 5% of the estate’s value. This amount can be as high as 15%. A trust avoids probate and keeps the record of transferred assets private. It is important to not just have a trust but to fund the trust with your assets. It is very common that the trusts are set up, but unfunded. Many people are unaware of this most critical step.
Are there age limits to a trust? No, anything that you want to give to your family can be placed in a trust. You can set the rules for specifics of payouts based on percentages, milestones, or other requirements. Protecting your legacy generationally or keeping your children’s family assets in the event they divorce is an important way a trust can be enacted.
A trust becomes effective as soon as it is signed while a will is only enacted upon death. Should you become incapacitated, a trust will protect you. If a practice is in a will, your family cannot sell it until it is released from probate. At that point all assets are frozen and anyone can make claims on the estate. The courts have to hear them out. In addition, a court can overturn your wishes in your will regarding who is in charge of your children. A trust will designate that person as a guardian, but financial decisions can be designated to another person or group of people.
A trust can be set up to protect you from legal recourse. Setup can be both revocable or able to be changed and irrevocable trusts which cannot. It is also a great tool for remarriage and children from a previous marriage.
A bonus tidbit for you: planning ahead for your children’s careers can allow them to receive merit-based financial aid, so start planning early.
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