Wills and trusts have key differences, including probate proceedings, public access, tax treatment, and asset management. Wills require probate and can be costly, while trusts avoid probate and offer greater tax benefits. Trusts can also be managed during the creator’s life and remain private.
While wills and trusts both offer a mechanism for distributing estate assets when a person dies, there are a number of key differences between them. Some of the key distinctions include whether they are subject to probate proceedings, whether they go public, and their tax treatment. Differences also exist in the management of any assets transferred by will or trust. Also, a will is usually cheaper to prepare than a trust. A will can, however, be expensive to validate, while a trust usually allows beneficiaries to avoid probate costs.
Under probate law in many jurisdictions, a will is a legally binding document that allows a person to give their assets to designated beneficiaries. The will usually takes effect only after the person’s death, and the distribution of assets is usually done by an executor. On the other hand, a trust can take effect during the life of the person. With a trust, a trustee usually conveys assets to a trustee to be held for the benefit of the beneficiaries.
A primary differentiation between wills and trusts is how they are managed after the creator’s death. In most jurisdictions, wills must go through probate, which means that a court decides whether the will is valid and controls the distribution of assets. This process can be costly because assets are often subject to estate taxes and the services of a real estate attorney may be required. With a trust, however, succession is avoided because the assets are transferred during the life of the settlor. After the death of the trustee, the trust continues to operate.
Confidentiality is another distinction between wills and trusts. Usually, a will becomes public after the creator’s death. In contrast, a trust generally remains private, allowing the beneficiaries to maintain confidentiality about the specific terms of the trust.
Wills and trusts are often treated differently when it comes to taxes. As a general rule, a trust can provide greater tax benefits than a will. For example, some jurisdictions allow a certain amount of trust assets to be transferred to beneficiaries without requiring payment of estate and gift taxes. The tax advantages available vary from one jurisdiction to another depending on the applicable trust law. A reputable trust attorney can help determine the benefits associated with a particular trust.
Wealth management works differently for wills and trusts. With a will, a power of attorney or registrar is usually given to manage the distribution of the estate. Trusts, however, can be managed by a trustee or trustee, depending on how the trust was set up. If a trustee manages a trust, he typically specifies who will manage the trust after he dies.
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