You’ve worked hard to build up your assets and you want to ensure that they’re distributed properly after you pass. Both Wills and living trusts can help you protect your assets and provide for your children after your death. It’s important to consider different estate planning options to figure out which type of tool best suits your needs, and this blog will compare two of the most common.
How a Trust Functions
A trust is a fiduciary agreement where a property is going to be transferred to a trustee for someone else’s benefit. A grantor is a person who creates and funds the trust. This person usually writes a trust document that transfers their properties to another person called the trustee. The trustee will be responsible for administering the trust, and the person for whom the trust is created is called the beneficiary.
Under New Jersey Law, the Uniform Trust Code controls the creation, operation, and termination of the trust. The grantor has the freedom to write the trust in the way they want except that it is not allowed to have a term that is illegal or against public policy. Often, New Jersey case law and the uniform trust code must be examined if the trust fails to address an issue.
A trust can provide for the management of property, distribution of income to the beneficiaries, and other powers that a grantor may want to give their beneficiaries. A trust can also be a part of a will and be used once the grantor passes away. This is called a testamentary trust. Living trusts, which are trusts written and funded during a lifetime, are not subject to probate.
In order for a trust to be enforceable, the grantor must have the legal capacity to create the trust. This means that the grantor must be of sound mind, memory, and legal age when they create the trust. If the grantor is found to lack the legal capacity at the time of the trust’s creation, the trust may be void or voidable.
What is a Will?
A Will is a widely known estate planning tool that outlines how you want your assets to be used after you pass. Not only does it describe how you wish your assets to be distributed, it allows you to name a guardian for your children. A Will does not go into effect until you die. It goes through the court system. The court system ensures that the person’s property is properly distributed and that the Will is valid.
Pros of a Will:
- Allows you to name guardians for children
- Names property managers for property given to children
- Straightforward to write
- Permits you to specify funeral and burial arrangements
Cons of a Will:
- Must go through probate process
- Entered into public record
- Only includes property in your name when you die, not property in a joint tenancy or trust
What is a Living Trust?
A living trust is a bit more complicated than a Will, but it may offer additional advantages to beneficiaries. It does not have to go through the probate process, which may allow assets to be distributed more quickly and provide for the needs of your children promptly. A living trust goes into effect as soon as it is created and notarized. All property listed in the living trust is transferred into the trust’s name. After the trust is created, you can add, remove, or distribute property if your circumstances change.
Pros of a Living Trust:
- Avoids the lengthy and expensive probate process
- Kept private and out of the public record
- Can protect government benefits for beneficiaries with disabilities
- May provide creditor protection to beneficiaries
Cons of a Living Trust:
- Requires notary public
- May be more costly upfront when compared to a Will
While both Wills and living trusts can be of use during the estate planning process, it all comes down to your and your family’s specific needs. For example, someone with grown children may not care that a living trust does not allow them to name guardians. On the other hand, someone with young adult children with significant disabilities may consider that a top priority in their estate planning needs.
Your estate planning efforts can impact your children and other beneficiaries for the rest of their lives, so it’s important to cover all of your bases and meet all legal requirements. Get help with your estate planning needs—contact the team at Matus Law Group at (732) 281-0060 to get started.
