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PeeKay Finance expose on Wills and Trusts

Understanding Wills and Living Trusts – PeeKay Investigates

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Wills and Trusts Outline: How do they work and Which one is best?

I don’t know about you, but when it comes to my family and their wellbeing, I go all out to understand and plan ahead. I believe that one’s family should not be left in confusion and disarray just because we are no longer living on this planet. So, today let’s talk about a subject that many try to avoid: the differences between Wills and Trusts and whether you need both!

Understand that this is a very deep and wide topic and I definitely wouldn’t exhaust it in one article. So, let’s call this the first essential step.

Disclaimer: Understand that, I’m not an attorney, I am a UK based Regulated Financial Advisor.

And my day-to-day work involves advising clients on their financial choices including setting up wills and trusts. And sometimes we set up a Living trust.

By the way, if you missed my deep dive on Life Assurance Vs Life Insurance you can take a look here. Take your time, we’ll wait! ?

 

And while we wait, here is a small back story… (names changed for data protection)

Lisa had been in a relationship with her childhood sweetheart, she eventually took the step of moving into his home, they happily shared the responsibilities and bills whilst living together. All was well in this happy relationship, however all that changed when Lisa’s partner Keith suddenly passed away.

As they had lived together for 8 years she believed that the home would be passed to her as she had more than paid her share of the outgoings for the time they lived together. The reality unfortunately was quite different, as the home was owned and mortgaged solely in the name of Keith. So, their home passed into his estate… and he didn’t have a valid Will, so the house passed to his next of kin whom was his dad. Sarah and Keith’s father had a strained relationship at the best of times, and after Keith’s death this relationship got worse.

With the house now being owned by Keith’s father, he informed Lisa that he intended to sell the house and offered it to her to buy it, she explained that Keith had wanted to the house to pass to her, but without this documented anywhere this simply didn’t happen.

The result of this was Lisa being evicted from what she believed to be her home and immediately after having to deal with the loss of Keith she now had to move out and try and find somewhere else to live.

A clear message to anyone in such a co-habiting situation, you have 2 options to prevent this happening to you. First you could get married and become each other’s next of kin, or secondly make a Will! The choice is yours.

 

Now, I used to think that as long as you are above the age of 21 and have an asset, you need a will… It’s that simple. Or is it?

You see, I had never heard of a living trust. And since I understood the differences between a will and a living trust, I know that one can use a will or a Living trust or both.

I mean everyone has heard of a will, and a trust, but do you know the differences between the two?

In my humble view, both are useful estate planning tools, BUT they serve different purposes. Also, they can work together when it comes to a comprehensive estate plan. So, let’s look at the main differences, shall we?

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Wills and Trusts Explained

#1. Understand that a trust is a legal arrangement. Its where an institution/company e.g., a bank or person called a trustee, holds legal title to property for another person called a beneficiary.

Your trust could have one or both of two beneficiaries:

  • Beneficiary receives income from the trust during their lifetime – aka a Living Trust.
  • Beneficiary receives the Trust’s remaining assets after the income beneficiaries passed.

A will covers any property held by you in your individual name.

A living trust is revocable, in other words, the author of the trust if alive, can Revoke the trust and or change beneficiaries. AND if a living trust is created it may supersede a will.

 

Let’s look at some examples.

Example #1:

Assume a client let’s call her Betty came to PeeKay Finance with her needs:

  • She chose to put everything she owns into a revocable living trust.
  • She named herself as trustee and her daughter Anne as the successor trustee.
  • We helped her include extremely specific instructions as to the disposition of her estate.

Then on 8th September 2020 Betty passed away, here is the effect of the living trust:

  • Her estate has already been distributed, according to her wishes. So, no confusion or family wrangles.

  • There was no need for any member of her family to contact a probate Attorney, no need for court, applying for trusteeship, no judge necessary.

  • All legal fees were paid when the trust was drawn up. So, no delays or fees to pay by her estate beneficiaries.

BUT you may be wondering, what if Betty didn’t leave a trust or will, what happens then? This is when you hear about the probate court.

Example #2:

If Betty dies without making plans for her daughter, to avoid probate. And the daughter Anne is a small child…It happens a lot.  You read about such stories, where there’s been an accident and the parent/s die.

In this scenario, Anne becomes an orphan and a ward of the state/court. The court appoints a guardian to take care of Anne until she is 18.

If the guardian did not do their job properly and Anne understands her rights, she may find another adult, to help her report the matter back to the judge and plead with the judge to tell the guardian to do their job.

But here is the sad truth, children/orphans rarely know that they can ask for help, for a change of guardian. And by the time they are 18 their parent/s’ estate has been diminished or wasted.

You only have to go and check court appearances for a day to see that almost 40% a day’s cases would be for probate – person died without making plans for their family or estate.

But listen, you are you and you are still alive and can make better decisions. You’ve got to be aware that everything you’ve worked for and built/saved for your whole life can flow into someone else’s hands who did not deserve it. UNLESS you make plans today.

How Do Wills and Trusts Work Together?

Here is how, if you came to a regulated and trusted financial adviser like us, we will sit down and go through a four-step process.

#1. I’ll upraise you of the history of the court system. You know how it works and why it works that way.

#2. We go through our documents and I explain why each one is important.

#3. I will ask you about assets, not because I want to know how much you have, but rather how much time it’s going to take for us to put together your documents. Then…

#4. If you like what you have heard and seen and it fits your budget, We can go ahead… I start gathering more information and put together your documents. And we are done. Simple isn’t it? 

 

Main Differences between Wills and Trusts

Both are legal and binding documents, but I believe that the main difference between a will and a trust is that:

A will goes into effect only after you die. While a trust takes effect as soon as it’s created.

A will is a document that directs those you leave behind on who receives your property at your death. It identifies a person known as an “EXECUTOR” who is to carry out your wishes, as stated in the will.

On the other hand, a trust can be used to begin distributing property before death at death or even manage assets after the death of a person.

When you die, a will doesn’t cover property held in joint tenancy, held in a trust, or that has a designated beneficiary. Provided the beneficiary is someone other than the estate.

A trust, on the other hand, covers only property that has been transferred to the trust.

Thus, in order for property to be included in a trust it must be put in the name of the trust.

Another difference between wills and trusts is that a will passes through probate.

Yet, unlike a will, a trust, bypasses probate and therefore avoids both the costs and delays associated with the probate process. It also remains private, unlike a will, which is a matter of public record.

This is a big one for me, a will allows you to name a guardian for children and to specify funeral arrangements, while a trust does not. On the other hand, a trust can be used to plan for disability or to provide savings on taxes for larger estates.

The major difference between wills and trusts that most focus on though, is typically cost.

In my humble opinion; even though more costly initially, a trust can ultimately be more budget-friendly because it avoids the probate process. 

Wills and Trusts Outline – Final Words

Hopefully, I have given you a clearer idea of what each does and how it can benefit you, your loved ones or causes close to your heart!

And provided each is properly drafted and funded; wills and trusts each have their advantages and disadvantages.

Ultimately, it’s up to you and your attorney or financial adviser to decide which of these two methods is best for you, based on your individual circumstances.

However, each of these differences should be carefully considered as part of your overall decision. For a deeper chat or more information let’s talk about your needs.

 

With what’s going on in the world today, Next time we might talk about… Private medical insurance! Unless you ask for a different topic.  

 

If you got value please do share this on social media, tell a friend, and share your thoughts in a comment below. We love hearing from our audience and clients.


PRIMROSE KWEZI

Pee Kay aka Primrose is an FCA Regulated Financial Advisor and Protection Specialist who helps families protect against life’s biggest financial risks. With tailored advice based on individual needs and circumstances to find the best solutions for you. Book a Chat Today

If you enjoyed our expose on Wills and Trusts do share your views below and feel free to connect. Thanks for stopping by. 

 

 


PeeKay Finance expose on Wills and Trusts

 

 

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