Your Essential Guide to Trusts and Wills: How to Document and Secure Your Legacy

In our blog series for Finance Literacy Month, we featured our beginner’s guide to estate planning and securing your legacy and outlined the roles and responsibilities of an estate executor. Now, we are going to dive into one of the important parts of estate planning: documenting your legacy either through a trust or will.

Here are some frequently asked questions on trusts and wills so that you can document your estate and secure your legacy that fulfills your wishes:

What is a trust? What are the different types of trusts?

A trust is a legal arrangement in which one person (the “trustee"), holds and manages assets for the benefit of another person or group of people, known as the "beneficiaries." The purpose of a trust is to protect and manage assets, distribute wealth, and minimize taxes.

There are several types of trusts, each with its own unique features and benefits:

• One of the most common types of trusts is a revocable living trust, which allows the creator of the trust to manage and control the assets while they are alive, and then transfer them to the beneficiaries after they pass away.
• Another type of trust is an irrevocable trust, which cannot be changed or revoked once it has been created. Irrevocable trusts are often used for estate planning and asset protection purposes.

Other types of trusts include:

• Charitable trusts, which are created to benefit a charitable organization or cause;
• Special needs trusts, which are designed to provide for the needs of a person with a disability; and
• Spendthrift trusts, which are created to protect assets from creditors and other legal claims.

What is a will?

A last will and testament is a legal document that outlines a person's final wishes regarding the distribution of their property and assets after their death. It provides instructions on how the individual's assets, such as money, real estate, and personal possessions, should be distributed among their beneficiaries.

A will also allows an individual to name an executor, who will manage the distribution of their assets according to their wishes. Additionally, a will can include instructions for the care of minor children or dependents.

It is important to keep the will up to date and ensure that it accurately reflects the individual's current wishes.

In the absence of a valid will, the individual's assets will be distributed according to the laws of intestacy, which may not align with their wishes. Therefore, creating a last will and testament is an important step in estate planning and can provide peace of mind to both the individual and their loved ones.

What is a living will?

A living will is NOT the same as last will & testament. This is an end of life document that has wishes around your end of life plans e.g. cremation or burial. It can also include medical wishes such as a do-not-resuscitate (DNR) order.

What is the difference between trust and will?

A will and a trust document are both legal instruments used for estate planning, but they serve different purposes.

The main difference between a will and a trust is that a will only takes effect after a person's death, while a trust can take effect during their lifetime. Additionally, a trust can offer more privacy, as it does not go through probate, which is a public process.

However, creating a trust can be more complex and expensive than creating a will, and it may not be necessary for everyone.

Do I need both a trust and a will?

No! A trust will always have a “pour over will” - called a last will and testament - that will be part of the state plan.

However, you can create a stand alone last will and testament without a trust.

How can I create a trust or a will?

To be legally binding, a will must meet certain requirements, such as being signed by the testator (the person making the will) and witnessed by 2 or more witnesses.

Important considerations: Hiring a professional to support you

We know that thinking about and documenting your last wishes can feel overwhelming and scary. That’s why we recommend you not undertake this process alone! These legal documents can be complex, so we highly encourage you to consult with a qualified attorney or financial advisor before creating or managing a trust or will. Here are some reasons why we recommend you work with a fiduciary professional:

1. An attorney will ensure that your legacy will be placed in the right hands
2. Hiring an attorney to help with estate planning will be more cost-effective now, compared to the stress and doubt on your dependents and beneficiaries about how to fulfill your wishes
3. An attorney will ensure everything is seamless to avoid complications