Many people wrongly believe they must choose between a will or a trust when thinking about estate planning. In reality – you can have both. But unless you are a lawyer, these terms may seem confusing. What is the purpose of a trust? How can one be included in a will? We find answers to these questions and more in the article below.
What exactly is a trust?
Simply put, a trust is a mechanism for a person to give their property or assets to another person for the benefit of a third party.
A trust has three components. It involves the “grantor” or the “settlor,” who describes the parameters of it, the “trustee,” who administers the trust after it is created, and the “beneficiary”, which benefits from it.
Traditionally, trusts hold assets for one or more beneficiaries and can provide significant tax and other protective benefits. Keep in mind that a trust isn’t a legal entity. It’s more of a method of settling property.
What is the purpose of the trust?
Trusts are used for many purposes, but one of the most common reasons people choose to include one in their will is to ensure that their assets are used as they wish, from the time the trust comes into effect until long after their death.
They can also be used as a means to manage the tax consequences of an inheritance. Some people create trusts to potentially protect their assets. Often, they are set up to provide financial care for young children or disabled dependents.
Advantages of a trust compared to a will
In most cases, trusts are used in estate planning. “Living trusts”, created during the testator’s lifetime, facilitate the transfer of assets to heirs without the expense and publicity of probate. Transferring assets through a trust is usually quicker and more efficient than through a will.
Disadvantages of using a will trust
However, testamentary trusts also have some disadvantages. Firstly, the role of trustee carries a lot of responsibility. Unfortunately, for many trustees, there is a lack of remuneration. Not to mention – administering wills is a time-consuming task.
In Canada, the laws governing the administration of wills are complex. Unless you have professional advice, it is easy to violate them without knowing it. That, in turn, can make you liable for someone’s negligence.
Should you use a will trust?
Testamentary trusts are a widely used estate planning tool and have many advantages that are unique to trusts. A carefully drafted and professionally drawn-up testamentary trust can be an excellent solution for achieving your personal goals.
However, in the case of testamentary trusts, it should be borne in mind that they are governed by laws developed over centuries and can be very complex.
Do you need a trust if you have a will?
A comprehensive succession plan usually includes both a will and a trust. By setting them up, you will maintain control of your assets in the event of disability or death. It’s an excellent way to avoid probate, preserve privacy, appoint a guardian for minor children and ensure that family, friends and charities receive payments as you wish. These tools should be an essential part of your long-term financial plan.
If you wish to learn more about trusts, check Canadian materials, as the use of trusts can vary in different countries.
Succession planning is part of estate planning to ensure that your estate passes on to the next generation and that any special wishes and circumstances are considered. If you include trust in your will, you can be guaranteed this will happen as efficiently as possible.
Are you still having doubts about creating a trust? Our team at Mikhailitchenko Law Office will gladly answer all your questions and provide effective legal services. Contact us here for more details.