There's a lot of discussion in the estate-planning world about whether wills or trusts are better for those making plans for their future.
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In this clip fromIndustry Focus: Financials, Motley Fool analystGaby Lapera and Dan Caplinger, the Fool's director of investment planning, talk about the pros and cons of wills and trusts and how each can be a smart move in different situations. Learn what you need to know about wills and trusts, and it will help you make your own decision about which is better for your particular needs.
A full transcript follows the video.
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This podcast was recorded on Sept. 22, 2016 for the Oct. 31, 2016 episode.
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Gaby Lapera: Wetalked about wills, but I also know that trusts aresomething that is commonly recommended to peoplewho are doing estate planning. Can yougo over what the difference is between a will and a trust?
Dan Caplinger:Basically, what a will does is, it's adocument that sits there, but it doesn't really take effectuntil the time of your death. Then, at that point,that's when the will kicks in and youfollow the instructions that are given in it. A trust, on the other hand, issomething that you can set upduring your lifetime,it has the same instructions thatyou would find in a willto handle what happens to your assets after your death,but it can also make provisions forwhat happens to your assets during your lifetime.
For instance, a lot of the time, the way that a trust gets drafted,the person who's the trusteeafter the person who's created the trustessentially takes onthe same role inmanaging that trust asset as someone who's given thepower of attorney over your financial matters would be given to the assets that aren't in a trust setup. It's that same level of trust that you areestablishing with the person that you name to take over if you'reunable to do so. Now, the big advantage of having a trust over a will is, having a trustgenerally prevents you from havingto go to a probate courtto have your matters dealt withafter your death. A trustdoesn't have to be a public document. A trustee has the power after your death to take action as specified in its instructions. So, it doesn'tgenerally need to have any court oversight to follow those instructions.
On the other hand, a will, in general,needs to be adjudicated before a court judge, and your will becomes a publicdocument. In those situations,it's something that a lot of people are less comfortable with,having those documents be out there in the public eye. It'snot like everybody's looking at them, necessarily, but they are availablein case anyone is curious. For many people who are interested inmaintaining their privacy, that's really not something that they need to have in everybody's business. They prefer theconfidentiality that a trust setup allows you to maintain.
Lapera:So, with the wills, do they all have to be sent to probate?
Caplinger:The processes for dealing with wills differ from state to state. Some states havewhat are known as simplified proceedingsin order to handle the vast majority of situationswhere there aren't that many assets, where you'reonly talking about transfers ofa minimal amount of money, or a minimumnumber of pieces of property. But, a lot of time, thethresholds for those simplifiedprocedures arepretty low. If you have more than just a minimal amount of assetsthat you're trying to pass on to your heirs, thosesimplified processes aren't available, and you do have to do a full-blown probate proceeding thatinvolves hiring an attorney,getting thenecessary court documents written up, and figuring out how to navigate that probate process,which could take months, or even years, and be extremely costly,especially if there are any complicated situations that arise.
Lapera:Can people challenge your will,if it ends up in probate court?
Lapera:So,that would be another advantage of having a trust --no one is going to be able to go to court, or, they'rea lot less likely to be able to go to court and challenge it in court, right?
Caplinger:Yeah. Again, that becomesone of the elements of the confidentiality aspect of it. A trust document doesn't have to be public. Thatdoesn't mean that it's invisible. For instance,in order for a trust to work, you have to actuallyput your property into the trust. For instance,if you own a house, you're going to want to do a deed transfer out of your ownindividual name into the name of the trust. So, anybody who looks upreal estate property records, which are public documents, will know that your house is owned in the name of a trust. So, they'll know it exists. That opens the door to potential challenges. Butit's not quite as simple of a process as it is when you have a will that's just out in the open.
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