When planning for the future, many people consider creating a will or trust to ensure their assets are distributed according to their wishes. Although both serve a similar purpose, there are significant differences between the two. In this essay, we will explore the differences between a will and a trust.
A will is a legal document that outlines how an individual’s assets will be distributed after their death. It is a straightforward document that is generally used for smaller estates. A will typically names an executor, who is responsible for carrying out the instructions outlined in the document. A will can be modified or revoked by the individual at any time as long as they have the mental capacity to do so.
On the other hand, a trust is a legal arrangement in which an individual transfers their assets to a trustee to manage on behalf of a beneficiary. A trust can be established during the individual’s lifetime, or it can be created upon their death. There are two types of trusts: revocable and irrevocable.
A revocable trust, also known as a living trust, can be modified or revoked by the individual who created it at any time during their lifetime. After the individual’s death, the assets in the trust are distributed to the beneficiaries named in the trust.
An irrevocable trust, on the other hand, cannot be modified or revoked by the individual who created it. Once assets are placed into an irrevocable trust, they are no longer considered part of the individual’s estate and are managed by the trustee on behalf of the beneficiaries. The advantage of an irrevocable trust is that it provides significant protection from creditors and may offer tax benefits.
Another key difference between a will and a trust is how they are administered. A will must go through a legal process called probate, during which a court determines the validity of the will and oversees the distribution of assets. This process can be time-consuming and expensive, and it can delay the distribution of assets to beneficiaries.
A trust, on the other hand, avoids probate and allows assets to be distributed to beneficiaries quickly and efficiently. This is because the assets in the trust are owned by the trust itself, rather than by the individual who created the trust. This means that the trustee can distribute assets to beneficiaries without the need for court approval.
General steps on making a Will
Here are the general steps to make a will in Singapore:
- Start by identifying the assets you want to distribute in your will, such as property, cash, or investments. You may also want to consider appointing an executor who will carry out your wishes after your passing.
- Determine who you want to be the beneficiaries of your will, and what percentage or amount of your assets each person should receive.
- Choose a reliable and competent lawyer or legal service provider to draft your will. Alternatively, you can also use a will-writing service or prepare your own will using a template, but it’s recommended to seek legal advice to ensure your will is legally valid and enforceable.
- Meet with your lawyer or legal service provider to discuss your wishes and preferences, and to review the drafted will. Make sure to clarify any questions or concerns you may have.
- Sign the will in the presence of at least two witnesses who are not beneficiaries or spouses of beneficiaries. The witnesses should also sign the will to confirm they witnessed the signing.
- Keep the original copy of the will in a safe place, such as a safe deposit box, and inform your executor or trusted family members where the will is located.
- Review and update your will periodically to ensure it reflects your current wishes and circumstances.
However, it’s important to note that certain assets cannot be distributed via a will. These includes:
- Joint accounts and joint tenancy properties: Assets held under joint accounts or joint tenancy cannot be distributed through a will. According to the law, if one account holder or joint tenant passes away, the surviving account holder or joint tenant will receive 100% of the asset. This arrangement may not align with your wishes and can create unforeseen problems, such as when the surviving joint tenant remarries and the property is passed on to the new spouse.
- CPF monies: CPF balances, along with assets like Singtel shares, are distributed through the CPF nomination rather than a will. If you have invested your CPF funds using the CPF Investment Scheme, those investments can be distributed via a will. When nominating beneficiaries for your CPF monies, it’s important to consider that if a nominee is below 18 years old, the funds will be held by the Public Trustee until the nominee reaches 18 years old (unless the nominee is a widow). This can lead to complications if both of your children are below 18 years old.
- Certain insurance nominations: Some insurance policies have specific nomination rules that prevent them from being distributed through a will.
In estate planning, it’s crucial to consider these factors related to joint accounts, joint tenancies, and CPF monies. Consulting with professionals in the field can help you navigate the complexities of estate planning and ensure your assets are distributed according to your wishes.
General steps on making a Trust
Here are the general steps to make a trust in Singapore:
- Identify the assets you want to transfer to the trust, such as property, cash, or investments. You may also want to consider appointing a trustee who will manage the trust assets on behalf of the beneficiaries.
- Choose a reliable and competent lawyer or legal service provider to draft the trust deed. The trust deed sets out the terms and conditions of the trust, such as the beneficiaries, the trustee’s powers and duties, and the distribution of the trust assets.
- Meet with your lawyer or legal service provider to discuss your wishes and preferences, and to review the drafted trust deed. Make sure to clarify any questions or concerns you may have.
- Sign the trust deed in the presence of a witness who is not a beneficiary or related to a beneficiary. The witness should also sign the trust deed to confirm they witnessed the signing.
- Transfer the assets to the trust, either by re-registering the assets in the name of the trustee or by executing a deed of transfer.
- The trustee will then manage the trust assets according to the terms of the trust deed, and distribute the assets to the beneficiaries as specified in the trust deed.
- Review and update the trust periodically to ensure it reflects your current wishes and circumstances.
It’s important to note that making a will or trust can be a complex and serious process and may require ongoing maintenance and administration. Seeking professional advice and guidance can help ensure these are set up properly, and that your assets are protected and distributed according to your wishes.
A will and trust are two different legal documents that serve a similar purpose. While a will is a straightforward document that outlines how an individual’s assets will be distributed after their death, a trust is a legal arrangement in which an individual transfers their assets to a trustee to manage on behalf of a beneficiary. The main difference between the two is how they are administered, with a will requiring probate and a trust allowing for quick and efficient distribution of assets to beneficiaries. It is important to seek legal advice to determine which option is best for your specific situation.