Two terms you will often hear surrounding estate planning are trusts and inheritance. While both involve the distribution of assets to another individual or individuals, there are notable differences between the two that you should be aware of.
What is a Trust?
A trust is a legal agreement in which a third-party (the trustee) holds assets that will be distributed to a beneficiary at a certain time, rather than immediately after your death. It is important to note that there are many different types of trusts.
What is an Inheritance?
Much like a trust, an inheritance allows for your assets to be passed on to someone of your choosing. However, contrary to a trust, an inheritance can only take effect following your passing.
How Does an Inheritance Work?
With an inheritance, the property and/or assets being passed on to another will be passed on following your death. The specific terms of the inheritance will often be included in a will. Creating a will allows you to make the decision on who should inherit the property and/or assets you want to pass on. On the other hand, if you were to pass away without a valid will, the court will determine to whom the property and/or assets get passed on to.
Which is Better: Inheritance or a Trust?
Determining which is ‘better’ will depend on your specific situation. With that said, it is recommended that you have a valid will prior to your passing. It is advisable for you to decide to whom your assets and/or property will be passed on to, rather than having that determined by the court.
If you have assets and/or property that you would like to pass on to someone at a specific time, setting up a trust will help you accomplish that.
For example, perhaps you own a house that you would like to pass on to your grandchild, however, that grandchild is currently a minor and would not be able to utilize the house. By setting up a trust that includes the passing of that house to your grandchild, say when he or she turns 18 years of age, you can ensure that it will be passed on at the appropriate time.
What Happens if You Want to Pass on Property or Assets, but You Do Not Have a Will or Trust?
If you do not create a will or trust that holds the property or assets you desire to pass on, things can become quite complicated. Ultimately, what will end up happening is the court system determining to whom your property and/or assets should be distributed – which is likely a scenario you want to avoid. Scenarios such as these can often lead to conflict between family members who feel as if they should have received the property or assets rather than the person who did.
How Can I Create a Will and/or Trust?
If you would like to set up your own will, trust or other various estate planning documents, we are here to help. Contact us today to learn more about how we can assist you with your estate plan.
For more information regarding estate planning and elder law matters, view our resources page here, which includes previous blog posts, our informative webinar series and previous newsletters.
Image by Mohamed Hassan from Pixabay
