What’s the Difference Between Trust Fund and Will?
It isn’t uncommon for the terms “trust fund” and “will” to be confused with each other despite that they’re not interchangeable. While some may have heard the terms, they may not understand their purposes. Here are guidelines to help you understand common uses for each.
What Is a Will?
Before we go into information on trust funds, it’s essential that you have an understanding of the role of a will. The purpose of a will is to document property you want directed toward individuals following your passing. This document doesn’t legally go into effect until you pass. A will appoints a legal representative — the executor — to carry out your final wishes.
What Is a Trust?
There are many types of trusts and the first thing that’s essential to understand is that they’re effective right away. What that means is that, as soon as you create a trust, any or all of your property can be given out before you die, as well as after your passing.
What Are the Types of Trusts?
Trust funds fall into three categories, revocable living trusts, irrevocable living trusts and testamentary trusts. The most common of the three is the revocable trust whereby the person who starts the trust acts as the trustee and runs it throughout their lifetime. An irrevocable trust names someone else as the trustee and, when the property is moved to it, it can’t be undone. Testamentary trusts are created by those who wrote the will and are not living trusts because they last only until the individual passes.
When Do Trust Funds and Wills Go Into Effect?
Wills go into effect immediately following the passing of the individual. As soon as it’s signed, a living trust goes into effect. As long as you remain mentally competent, it’s possible to make amendments to your revocable living trust or will right up to the time of your passing through wills and trust fund companies.
What Does Each Plan Cover?
When thinking about wills and trusts, it’s essential to know what each plan covers. At the time of your passing, your will is what decides how your property is divided up. A living trust fund has the purpose of distributing all property from which it’s been funded. After it’s been formed, the grantor transfers assets into it including life insurance policies they own.