Generally, building your wealth to afford to live a comfortable lifestyle is a common basic human drive. It is, for this reason, a number of entrepreneurs and workers keep nose to the grindstone to make a living. Inasmuch as it is important to earn and acquire assets, it is equally important to properly plan how you want your property and belongings divided among your beneficiaries when you are long gone. This is in order to avoid the wealth from landing into the wrong hands.

The practice of doing this is known as Estate Planning. We have 2 commonly used estate planning tools and they are Will and Trust. They both serve different purposes, and can at the same time work together to create a complete estate plan.

Definition

Basically, a Will is a legal document that lays out the fate of your property, possessions, and money after death. It states the name of the beneficiaries and in what amounts they receive. On the other hand, a Trust is an arrangement where you entrust your property to a Trustee. The Trustee is tasked with managing the property on behalf of the beneficiaries.

Timing

The major difference between the two modes of estate planning is the ‘effect timing’. For a Will, the estate is distributed amongst the beneficiaries as stated in the Will immediately after the demise. On the other hand, once the Testator sets up a Trust, the assets stated in his/her Trust Deed are transferred to a Trustee to manage on behalf of his/her beneficiaries and this comes into effect immediately the Trust Deed is signed. In contrast to a Will, a Trust can be used to begin distributing property before death and at death.

Coverage

A Will only covers the administering of property owned in the sole name of the Testator at the time of death. It does not cover property held in Trust, or joint agreement like tenancy, life insurance. In the event of death, the beneficiaries would have access to the balance standing in the Retirement Savings Account of the deceased only through a written will or letter of administration that has been admitted to the Probate Registry. A Trust, in comparison, covers only property that has been transferred in writing, into the Trust. The disadvantage with this is that the property acquired long before the Testator dies that is not accounted for in the Trust, will go through Probate. To avoid such, the Testator is advised to write a Pour-over-will in addition to the Trust.

Probate

In order for the beneficiaries to access the assets in a Will, they have to go through the Probate and this could take weeks, possibly months. The Court will manage the administration of the Will and ensure the assets are properly distributed in accordance with the Testator’s wishes. Whereas, with trust, you can avoid the use of a probate court. This will relieve the stress of your beneficiaries and enable them to save time and money. The beneficiaries get to access your estate as you had wished when you were alive…stress-free!

Cost

Generally, the cost of writing a Will is less than the cost of setting up a Trust. That is because a Will requires no further action on the part of the Testator after it has been signed and is much simpler to create than a Trust. A Trust is more complex than a Will because it involves the management of the Testator’s property while he/she is alive as well as its distribution after death. Moreover, a Trust must be funded while the Testator is alive and this can require putting together some legal paperwork and filing.

Simply put, choosing a suitable estate plan depends on your personal situation. It is possible to have both in a complete estate plan in order to hold your large assets (as the case may be) despite the differences. For more information please call us on 01-2800800.

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Glossary

Some of the terms used in this article are described as follows (in order of appearance):

Testator: A Testator is a person who makes his or her Will

Beneficiary / Beneficiaries: Person(s) entitled to receiving property under the terms of a trust policy.

Probate: A probate is a legal process in which a Will is reviewed to determine whether it is valid and authentic.

Estate: This consists of all property owned by you at the time of your death, including real estate, savings accounts, retirement savings account, stocks and other securities, personal property.

Trustee: A Trustee can either be an individual or a corporate body appointed by the Testator to look after the assets in the Trust for the benefit of the Beneficiaries.