If you want your relatives to inherit your property after you pass away, you can either make a will or create an inheritance trust fund. Is it better to have a will or a trust? The answer to this question depends on several factors. Generally speaking, a will can be a better option if you don’t have very much to leave to your heirs and an inheritance trust can be the right choice if your possessions are profuse. Below we discuss the main aspects to consider if you would like to choose between making a will and creating a trust.
Advantages and disadvantages of making a will
The document that describes who your property will go to after your death is often officially called ‘Last Will and Testament’. In addition to naming the beneficiaries, the will can appoint guardians for minor children (if applicable) as well as the will executor. A will executor is the person (less often an institution) who has to make sure that the property of the deceased person is distributed to the heirs in accordance with his or her wish.
There are several types of wills but their applicability depends on the legislation of the country where the will is made. Every state in the USA will also have its own regulations pertaining to the proper ways of making a will. In all cases, however, the will has to be signed by witnesses whose number will again depend on the country. In many cases, the will also has to be notarized to be valid.
Is a will better than a trust? It depends. However, an offshore trust can serve other purposes too. Establishing one can help you protect your assets in the most efficient manner. Please supply your email in the form below and we will get back to you shortly to discuss this opportunity.
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If you have neither too much property to leave nor too many heirs, you can make a simple will. The word ‘simple’ here means that the will is made by one person (called ‘the testator’) and without the assistance of an attorney. The will has to be signed by witnesses who have to be adult people (normally, two witnesses are required to sign a will but some countries will have their own regulations).
Because your Last Will can be theoretically found invalid by a court of law, you should take the matter seriously. You can hardly correct the mistakes after you die. The testator has to be at least 18 years of age to be able to make a will. He or she also has to be mentally capable of making a will, that is, be ‘in sound mind’. The testator has to have a desire to make a will: wills made under coercion are deemed invalid.
There can be some other reasons why your will can be found invalid. For example, the person signing the will as a witness may not qualify for the job (he or she may be too young, for instance). Second, your will may violate the country’s laws. In some countries, you are not allowed to leave nothing to your spouse/ children. Third, some national states require that the will shall be printed rather than handwritten.
In some places, you can also make a joint will with your spouse. Normally, such a will says that after one of the spouses dies, the property that he or she possessed goes to the other spouse. Thus, if the house where the married couple lives is registered in the name of the husband, the wife inherits it after the husband dies in accordance with the joint will. This naturally applies in the reverse situation. The joint will also designates the heirs who should come into possession of the property after the second spouse dies. It is important to bear in mind that the surviving spouse is not entitled to make any changes to the joint will.
To give each spouse more freedom, a reciprocal (or a mirror) will can also be made by a married couple. A reciprocal will is actually two wills that are mirror reflections of each other. For the sake of simplicity, let’s say that the husband leaves everything to the wife, and the wife leaves everything to the husband. In case a reciprocal will is made, the surviving spouse can change his or her will because it is his or her own will, not a joint one.
If you have some considerable amount of property to leave to your heirs or you have a large number of them, you may want to apply for professional assistance in making a will. You can hire an attorney or a professional will writer (you probably have not heard about such an occupation but it exists). You also want to have the will notarized and it would be a good idea to have it signed by the witnesses before the notary public.
How can your will become invalid in your lifetime? First, you can invalidate it yourself by physically destroying the document. Second, you can make a new will without tearing the old one into pieces. In most countries, the will made at a later point in time is automatically considered valid and the one made at an earlier point is considered invalid. This has to be your ‘last will’, after all. Third, many national legislations consider the will invalid when the testator’s marital status changes. If you were a bachelor when you made your last will and now you are married, you have to make a new will.
What is the main disadvantage of using a will as an instrument of handing down property to your heirs? It is the probate – the period required to ascertain that the will is made in accordance with the national laws and it can be executed in accordance with the laws. In no case can your heirs come into possession of the property that should descend right after your death: some time always has to pass. In case the will is not totally clear (suppose you ignored applying for the services of a professional will writer) or if an heir is unhappy with the will clauses and he/ she starts arguing, the probate can extend over several years!
Besides, a court decision is required for the will to come into force, which makes it a public document. This is not the case with the inheritance trust that we discuss below. Moreover, an inheritance tax may be due if you make a will and it is rather high in some national states. Creating a trust for inheritance may help you avoid paying the tax.
Advantages and one disadvantage of creating a trust
Why is a trust better than a will? There are many reasons why you should consider setting up an inheritance trust fund rather than making a will. This is especially true if you are a wealthy person and you have more than one or two heirs.
Setting up an LLC in Nevis in a combination with a trust is probably the best asset protection combo that you could find.
What is a trust in general and what is an inheritance trust in particular? A trust is a legal entity where you can put your real estate and any other property and the trust will hold it for the benefit of other people or another person. In case of the inheritance trust, your heirs are the beneficiaries of the trust.
The person who creates a trust is called the trustor, the settlor, or the grantor, depending on the country (and the state in the USA). The trustor can put somebody in charge of holding the property for the benefit of the trust beneficiaries and that person is referred to as the trustee. A legal entity can also act as the trustee and besides, the trust can have several trustees. In the latter case, they are called ‘co-trustees’. It would be wise to appoint an alternative trustee too to insure yourself against the situation when your primary trustee is unable or unwilling to perform his/ her duties.
The trustee serves as the property manager, so he or she is a very powerful person indeed. The trustee decides how the property should be managed and – to a large degree – how the income derived from the property should be distributed to the trust beneficiaries. The scope of the trustee’s authority is defined in the trust agreement that is usually referred to as the ‘trust deed’.
A trust created in your lifetime is called a living trust. An important advantage of a living trust is that it doesn’t have to go through probate. You might consider creating a testamentary trust, which is a trust established AFTER your death in accordance with your testamentary will. However, a testamentary trust goes through probate similarly to a will, so it is probably not the best option if you look at the matter from your heirs’ point of view.
Creating a revocable trust in Nevis can be a healthy alternative to making a will.
A living trust can be revocable or irrevocable. With a revocable trust, you remain the owner of the property and you can extract it from the trust (‘revoke’ it) at any time. This means that you are liable for all the taxes on the property in your revocable trust. Changes to an irrevocable trust can be made solely with the trust beneficiaries’ consent. Setting up an irrevocable living trust is an opportunity to save on taxes during your lifetime. That is to say, not only your heirs can save on taxes but you can do so too while you’re still alive if you create an irrevocable trust.
Saving on taxes is an important advantage of a trust in comparison to a will. What other benefits can a trust for inheritance bring? First, it can provide protection in case of divorce. If you leave the money to your son, for example, in a will and your son divorces his wife, the wife is entitled to half of the fortune in many western countries. If your son is a (the) beneficiary of a trust that holds your property, he is technically not the owner of the property (it belongs to the trust) and thus, the property cannot be taken away.
The property kept in a trust will also be protected in case a lawsuit is filed against your heir. He or she doesn’t have to do anything wrong to get involved in a lawsuit: western societies are especially lawsuit-friendly. The money kept in a bank account is going to be under threat if legal action is taken against its owner while his or her property kept with a trust is not. Put yourself in the greedy plaintiff’s shoes: if you know that the person has good money up for grabs, you may be tempted to sue them. If you know their property is in a trust, why would you want to sue them? You won’t get anything anyway!
There is another good reason to set up an inheritance trust (a living irrevocable trust in particular). You control your adult children’s expenditures while you’re alive by giving them limited sums of money on a regular basis. But you can keep exercising control over their expenditures even when you’re gone! Set up an inheritance trust and indicate precisely in the trust deed in what cases the trustee should NOT give money to your children. (Let’s assume that you children are your only heirs for the sake of simplicity.) This would be an especially good idea if you know that your children are careless about spending money and they could easily spend extravagant amounts on something they don’t really need.
You could also consider creating an inheritance trust in a foreign jurisdiction whose legislation is especially good at protecting property belonging to trusts. Setting up a trust in Nevis is an option to consider if you would like to maximize the level of your property protection. After all, the property is going to be used by someone that you loved when you were alive.
How much does it cost to set up a trust? The amount of the required investment can be significant but the inheritance tax may well be even higher if you opt for making a will rather than creating a trust.
To conclude, we would like to point out one disadvantage that trust establishment has. It is rather costly to set up a trust. Professional advice is indispensable if you would like to become a trustor: you have to pay an attorney or attorneys. Besides, if you want to make any amendments to the trust deed, you have to hire an attorney again and pay again. On the other hand, a trust can save more for your heirs than the amount that you’d have to pay when establishing it.
Offshore Pro Group experts specialize in assisting people with foreign trust establishment. So, if you would like to take a deeper look at the opportunity of setting up an inheritance trust, please write to email@example.com without hesitation and request a consultation. We will be happy to help you save on taxes in legal ways and protect your assets efficiently.