A will is a document that establishes who will receive your property after death. To create a will, you must follow certain formalities in order to disperse your property as you wish. If the rules are not followed on how your will is created, then the state that you live in will govern the dispersal of your property instead, usually through what is called intestacy.
A will can be typed or handwritten. If it is handwritten, or holographic, then it must be completely in the testator’s (the creator of the will) handwriting; include the testator’s signature; contain testamentary language such as “Upon my death, I want to give…” or something to that affect; and include the property to be given away and the beneficiaries to receive it. However, these requirements can change from state to state, so it is important to check with your in-state estate planner to ensure the validity of any holographic will.
Another important requirement is that you must meet your state’s requirements for witnesses present upon signing the document.
Additionally, a will must be made voluntarily, or in other words, the will was made without force, threats, or under duress.
And lastly, the testator of any will must have the capacity to make the will. Capacity refers to both legal capacity, or being older than 18 years of age, and mental capacity, or having a sound mind, in which you know that you are making a will to give your property away upon your death.
A will can be a great way to disperse your assets after death, but it is not your only option. You can also opt to create a trust.
A trust is a legal arrangement in which property is held by a third party for the benefit of another. Like wills they can be used to transfer your property after death, but unlike wills can also be used to manage property while alive.
The person who creates a trust is known as a trustor, but there are various names that can be interchangeable, such as a grantor, donor, or settlor. The person or entity that agrees to hold the property is known as the trustee. The property that the trustee is holding is known as principal. Lastly, the person or people who receive the benefits of the trust are known as beneficiaries.
There are different types of trusts and each can be created depending on your goals.
A living trust is a trust that becomes effective immediately upon its creation, as opposed to a testamentary trust, which contains testamentary language (“Upon my death…”) that becomes effective upon death.
Trusts can also be either revocable or irrevocable. If the trustee creates a revocable trust, then he or she retains ownership and control of the property, and thus can change the terms of the trust, including the trustees and beneficiaries. In contrast, when an irrevocable trust is made, the property is officially transferred over to the trustee and no longer belongs to the trustor.
Revocable trusts are usually created when the primary goal of the trustor is to maintain control of property in the event of incompetence. Irrevocable trusts are usually created when the primary goal is to avoid estate taxes, since you do not have to pay taxes on property the trust owns.
This leads us back to wills and the big difference between wills and trusts. When creating a trust, the property does not have to go through probate, where the will is analyzed and effectuated, because upon the death of the trustor the property does not have to be distributed, as it is already in a trust. Avoiding probate can save a lot of money and is why many people opt to create trusts over wills. However, this is just one of the pros of trusts over wills. It truly depends on what your primary goals are and what you are trying to achieve when creating either a will or trust.