You plan on wetting a line with your loved ones for years to come, but you know life can change in the blink of an eye. In those situations, you want to make sure everything is in place ahead of time. That’s where having a will and estate plan comes in handy. But the terms aren’t always the easiest to understand. Here are some of the differences between a will and other estate planning tools – and why you should consider them.
What is a will?
A will is a legal document that details what you want to happen to your assets once you pass away. Where do you want your money to go? What will happen with the property or other personal belongings you have? A will is generally one of the most common terms associated with estate planning.
What is a trust?
Wills and trusts both deal with property. However, a trust does not always require you to go through probate court for validation. There are two kinds:
- A testamentary trust transfers your assets after you pass away.
- A living or “inter vivos” trust starts when you are still alive, but can continue on after you pass.
There are many benefits to setting up a trust. For example:
- Depending on the type of trust you have, your loved ones may be able to avoid the probate process after you pass. A trust allows you to set certain stipulations for how inheritance will work after you pass.
- A trust can even help you make donations in a way that saves taxes for your estate.
- Since the probate process is public information, many like utilizing a trust to avoid probate – and therefore keep their affairs private.
The trust is set up as a private agreement between you and the trustee. There are two kinds of living trusts: revocable and irrevocable.
- Revocable trust – This is the most common kind. With a revocable trust, you can make changes to the trust while you are still alive.
- Irrevocable trust – With an irrevocable trust, once it is set up, it cannot be changed in any way.
What is powers of attorney?
While none of us like to think about it, there may come a day when you are unable to make decisions for yourself. Just in case this ever happens, you will want to have powers of attorney set up beforehand.
A powers of attorney establishes who will make decisions on your behalf if you are unable to. This can include healthcare decisions, along with financial decisions. It is up to you who you designate. While some people have their powers of attorney be the same person as the executor of their estate, others choose separate people. What is important is that it is someone who you trust and someone who is going to carry out your wishes with your best interests in mind.
Protecting your future
Thinking about that final goodbye is not fun. But planning ahead is important and will take away some of the stress involved after a loved one passes. It also means your family will be able to focus more on grieving and remembering their memories of you than on figuring out who gets what.