Estate planning is often overlooked or pushed aside by many people. However, it is an essential part of responsible financial and family planning. A common question that arises when talking about estate planning is whether to create a Will or a Trust. In this article, we will explain the differences between a legal Will and a Trust and which product is best suited for what type of person in NSW.
What is a Will?
A Will is a legal document that outlines how a person’s assets and property will be distributed after their death. It appoints an executor who is responsible for carrying out the instructions of the Will. A Will can be revoked or amended at any time while the testator is alive and mentally competent.
Who needs a Will?
Anyone who has assets, property, or children (especially if they’re under the age of 18) should have a Will. It should outline your wishes for your dependents, distribute your property according to your wishes, and name an executor to manage your affairs.
If you die without a Will, legislation will determine how your assets and property are distributed. This is called dying intestate. In this case, an administrator will be appointed to confirm beneficiaries who are entitled to a share of the estate. Assets are distributed according to a set formula under legislation. The administrator might be the NSW Trustee & Guardian, or to one or more individuals with the greatest entitlement.
Advantages of a Will
A Will is a relatively simple and inexpensive way to outline your final wishes. It is easy to create and does not involve high legal fees. Wills can also be updated or amended as circumstances change. Wills also offer the option to name guardians to care for minor children if both parents pass away.
Disadvantages of a Will
Wills become public record after your death, so your personal and financial information may be available to anyone who wants it. Wills may also be subject to challenge or litigation, which can delay the distribution of your assets and increase your estate’s costs. Additionally, Wills do not offer any estate tax benefits.
What is a Trust?
A Trust is a legal arrangement where a trustee manages and distributes assets to beneficiaries according to the terms of the trust document. Trusts can be used for various purposes, such as managing assets for minor children, protecting assets from creditors, or minimising estate taxes. The ideal scenario for a Trust is if the asset base is very large and there are no debts – purely high-end income.
Who needs a Trust?
Trusts are beneficial for individuals who have large or complex estates, who have minor children who cannot inherit directly, and who are vulnerable or unwell. Trusts can also be used to pass property or assets to beneficiaries without going through probate, which can be time-consuming and expensive.
Advantages of a Trust
Trusts offer a higher level of control over your estate, as they can be customized to your specific needs. Trusts also offer privacy, as the document is not subject to public record, and assets can be distributed privately. Additionally, Trusts can help minimize estate taxes and protect assets from creditors. A trust might also be beneficial for adults in uncertain relationships – since the assets sit within the trust, they’re not able to be accessed by beneficiaries (and therefore protected from beneficiaries).
Disadvantages of a Trust
Trusts are more expensive to create than a Will, require ongoing management, and are subject to higher legal fees. Trusts cannot be modified as easily as Wills, and assets must be transferred to the Trust to obtain the advantages. Additionally, a trust structure is very rigid and might face issues with borrowing money against the trust.
When it comes to choosing between a Will and a Trust, there is no one-size-fits-all answer. It depends on your personal situation and goals. If you have a large, complex estate or have minor children, a Trust may be the best option. However, if your estate is simple, a Will may suffice.
It is essential to consult with an experienced estate planning attorney to determine which option is best suited for your needs. Contact CM Lawyers to discuss your options for securing your future and protecting your loved ones.