Disadvantages of a Trust
You’ve likely heard about wills and trusts in real estate planning. However, you might be unsure about the difference between the two, or which is best for protecting your assets and family.
Many estate planning options are available, and choosing the right one can be overwhelming. We have an experienced team dedicated to helping you find a plan that suits your needs, depending on your life situation.
Making such important decisions now is the best way to ease things for your loved ones in the future. This article breaks down all there is to know about trusts and wills in estate planning. Read on to understand the differences between the two and determine which best suits your needs.
What is a Will?
Wills are legal documents stating your wishes on how to distribute your property and care for minor children. They are enforced after death, and not having a will may result in your wishes not being carried out. Your heirs may also spend money, emotional energy, and time settling your affairs.
Why a Will?
Wills are important for everyone, not just those with complicated assets or wealth. Reasons for having a will include:
- Preventing unwanted individuals from inheriting your property.
- Clarifying asset distribution among your heirs.
- Naming guardians for minor children.
- Facilitating easier and faster asset transfer to heirs.
- Planning for tax savings, such as charitable donations to offset estate taxes.
Types of Wills
A Written, Witnessed Will
This is the most common type, prepared and signed in the presence of witnesses. It’s effective against challenges from business associates and family members. While you can create a will yourself, having it done by estate attorneys and trusts ensures legal correctness and compliance with state laws.
Holographic Wills
Holographic wills are written and signed by the testator without witnesses. They are used in urgent situations and are not recognized in some states. States that do recognize them require proof that the testator wrote the will and was mentally capable at the time.
Oral Wills
Oral wills involve the testator verbally stating their wishes in front of witnesses. They are the least recognized due to the lack of written record.
Pour-Over Wills
These wills are used to create a trust through which your assets flow.
Mutual Wills
Mutual wills are used by couples to bind the surviving partner to the will’s terms upon the death of one partner, ensuring that assets are transferred to their children, not a new spouse.
Disadvantages of a Will
Disadvantages include:
- Potential subject to income or federal estate taxes.
- Possible challenges on validity and probate processes.
- Becoming public records accessible to anyone.
What are Trusts?
A trust is a fiduciary relationship where a trustor gives a trustee the right to hold title to assets or property for the benefit of a beneficiary. Trusts legally protect assets and ensure they are distributed according to the trustor’s wishes. They help reduce paperwork, save time, and can reduce or avoid estate or inheritance taxes.
Why a Trust
- Some trusts can reduce estate taxes.
- Trusts avoid probate court.
- Trusts are low maintenance.
- Trusts provide better control of your assets.
- Trusts are better for dependants with special needs.
- Trusts protect loved ones’ inheritance.
- They ensure your loved ones are cared for.
- Trusts ease the division of complex assets.
Types of Trusts
Testamentary or Living
Also called inter-Vivos trusts, these are created during the individual’s lifetime with assets transferred to beneficiaries after death through a successor trustee. A will trust or testamentary trust specifies asset distribution after the individual’s death.
Irrevocable or Revocable
Revocable trusts can be changed during the trustor’s lifetime, while irrevocable trusts cannot. Testamentary trusts are irrevocable, whereas living trusts can be both. Irrevocable trusts are advantageous as they remove the trustor’s assets from their possession, potentially minimizing estate taxes.
Unfunded or Funded
Funded trusts have assets added by the trustor during their lifetime, whereas unfunded trusts may only have a trust agreement without funding. Proper funding is crucial to avoid exposing assets to risks.
Disadvantages of a Trust
- Complex structure.
- Restrictions in the trust deed on trustees’ powers.
- Expense in establishment and maintenance.
- Complications in borrowing due to complex loan structures.
Will Vs. Trust
Wills and trusts serve similar purposes but are not interchangeable. Wills take effect after death, while trusts can be effective immediately. Wills are simpler but offer limited control over asset distribution and often go through a probate process. Trusts, while more complicated, provide greater control and variety, suitable for different situations. They avoid probate but require funding after creation.
Which of the Two is Better?
Both trusts and wills offer specific benefits. The choice depends on individual situations and objectives. Professional advice is recommended before deciding.
Can You Have a Living Will and a Trust?
It’s possible to have both a living trust and a will. A trust manages asset distribution, while a will can appoint guardians for children and declare final wishes. However, combining them requires careful planning, such as using a pour-over will, to ensure comprehensive estate planning.
What Next?
Choosing between a will and a trust depends on your specific needs. Professional legal advice is essential, especially concerning the wording and structure of these documents, to avoid potential inheritance issues for your family.
Trust & Probate Litigation Lawyers
Are you looking for a trust litigation lawyer in the Orange County area? When it comes to the practice of Trust and estates, it can be difficult finding an attorney that’s experienced in handling your specific issues.
Trustee Topics
- Can a Trustee sue on behalf of the trust
- Can a Trustee be held personally liable
- Can a Trustee remove a Beneficiary from a trust
- Settling a Trust After Death
- Being a Trustee of a Trust
Beneficiary Topics
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