Estate planning is one of the most crucial steps you can take to safeguard your family and make sure that your assets are distributed as you would like. But many people don’t know if they need a will and/or a trust. The following are frequently asked questions because the will and the trust have different functions: What is a will vs trust? Will vs trust? Is a trust better than a will?
A will is a legal document that gives directions on how your assets will be distributed after your death. It can also designate guardians for your minor children. In contrast, a trust is a legal instrument that enables a person to give instructions to the trustee that they will manage and distribute assets on the beneficiary’s behalf. It can be established during your lifetime, and may mean you’ll save on having your assets passed through probate. (Guardian Life and National Council on Aging)
This document can help you to understand the distinction between a will and a trust, the pros and cons, and which one may be right for you to meet your estate planning needs.
What Is A Will?
A will, or a last will and testament, is a legal document that expresses one’s wishes regarding distribution of property and assets after his or her death.
A will can also:
- Name beneficiaries.
- Designate an executor for your estate.
- Name guardians for young children.
- Give directions for personal items.
- Outline the process for repaying debts and paying taxes.
A will is usually not given effect until after your death.
What’s A Trust?
A trust is a legal relationship between two parties, one (the trustee) who holds and administers assets for the benefit of another party (the beneficiaries) who are asking “what is a trust?”.
The person who establishes the trust is often referred to as the grantor, settlor or trustor, depending on the jurisdiction.
A trust can own assets such as:
- Real estate
- Bank accounts
- Investments
- Business interests
- Personal property
Depending on the type of trust, many trusts come into existence during the grantor’s lifetime.
What Is The Difference Between A Will And A Trust?
The primary distinction is that they work differently, and consequently, at different times.
A will:
- Applies when one is dead.
- Typically undergoes the probate process.
- Name guardians of children.
- Makes decisions on the allocation of assets.
A trust:
- May apply to you during your lifetime.
- Probate for assets properly placed into the trust.
- Continues to permit the management of assets.
- Is able to allocate assets based on instructions or specifications.
Following is a breakdown of the differences between a Will and a Trust.
Below are the main differences.
Probate
Will
Probate is the legal procedure to validate a will and administer an estate and is therefore required for most wills.
Each state has its own probate procedure and it can be supervised by the court.
Trust
In many situations, benefits can be passed on more effectively to beneficiaries when the title of the assets is held in a trust, avoiding the probate process.
Privacy
A will that is probated is typically part of the court public record.
Trust administration may be more private as it may not have to be done in public court.
Control of Assets
A trust can fill in the details regarding:
- Beneficiaries’ benefits in the form of cash.
- The purposes for which funds can be spent.
- Ongoing financial management.
- Security for unsophisticated protected persons.
A will only comes into play after the person dies, and doesn’t offer the same degree of control over the management of assets.
Incapacity Planning
Many revocable living trusts have the benefit of being able to be used during your lifetime to help manage your assets if you get incapacitated.
Depending on terms of the trust and laws, a successor trustee may be able to act as the trustee in the absence of a court action.
This type of lifetime asset management is provided by no will.
This offers a comparison of a trust and a will fund
There are a number of people who are looking for the difference between a trust fund and a will fund.
The assets that are placed within a trust are a trust fund.
A will does not create a trust fund unless a provision is included in the will after death which provides for the creation of a testamentary trust.
Which Is Better For You: A Trust Or A Will?
There is no one right or wrong answer.
Choose the one that is best for you.
A trust may be beneficial if you:
- Own significant assets.
- Prefer to minimize the probate.
- Value privacy.
- Own property in several States.
- Desire asset ongoing management.
- Make plans in case of handicap.
If you do, a will may be enough:
- Have a fairly straightforward inheritance.
- Desire to designate minor children’s guardians.
- Desiring a simple estate plan.
- Have limited assets.
A great many estate plans feature both a will and a trust.
There are several benefits of having a Will, including:
There are a number of advantages to a will.
- Easier to create.
- Less initial expenses than some trusts.
- Designate guardians of children.
- Clearly identifies beneficiaries.
- Allows someone to be appointed as an executor.
The benefits of a Trust can include the following:
A Trust offers extra planning options.
- May avoid probate.
- Greater privacy.
- Ongoing asset management.
- Planning for incapacity.
- Greater control of distributions.
- Possibly accelerated transfer of the assets of trust.
- There are several drawbacks to having a Will.
Potential drawbacks include:
- Probate process.
- Public court records.
- No Asset Management for building.
- In some instances delayed distribution.
A Trust has a number of drawbacks:
Potential disadvantages include:
More complex setup.
Greater initial legal fees.
The assets have to usually be placed into the trust to receive any advantages from the trust.
May need to be continued.
Is it possible to have a Will and a Trust?
Yes.
Indeed, numerous estate planning lawyers suggest using both.
One of the typical approaches is:
A living trust (revocable) to keep significant assets.
A “pour-over” will is a will where the assets that have not been distributed to any beneficiaries go to the trust on the person’s death.
Durable Power of Attorney.
Healthcare directives.
The best strategy will vary based on your financial situation and estate planning goals.
Who Needs A Will?
A will may be particularly valuable in certain circumstances, such as:
Have children.
Own property.
Maintain savings/investments.
Desire to select who you wish to benefit from your life insurance policy.
Desire to make an executor.
A valid will is beneficial for anyone with a small fortune.
Who is suited to establish a Trust?
Consider a trust if you:
Own multiple properties.
Have a mixed family.
Have beneficiaries who have special needs.
Own a business.
Want greater privacy.
Desire to make transferring trust assets after a person’s death easier.
Talk with an estate planning attorney to find out if a trust is right for you.
There Are Some Common Myths Regarding Wills And Trusts
Wealthy People Need Trusts – Only!
False.
Trusts aren’t just for the ultra-rich, but they may be useful for a family with a more modest estate, depending on the family’s objectives.
The Trust eliminates all taxes.
False.
Trusts can provide planning benefits but do not necessarily be a way of avoiding estate, inheritance or income taxes.
Avoid the cost and delay of probate by creating a will.
False.
Generally, all wills must go through probate unless the state law offers a simplified procedure for probate or other exceptions.
FAQs
What are the differences between a will and trust?
A will is a document that becomes effective upon your death and typically undergoes probate; a trust is a document that can be activated while you’re alive and may help in avoiding the probate of assets appropriately titled in the trust.
Is a Trust better than a Will?
Not necessarily. A trust can offer more options, privacy and probate avoidance for trust assets, and a will is necessary to name guardians for minor children and to dictate the distribution of assets. Many people find that they like to have both.
What’s a trust?
A trust is a legal device in which the assets are placed in the trustee’s hands to be managed for the benefit of the beneficiaries according to instructions set forth by the person who created the trust.
Is it possible to make both a will and trust?
Yes. A comprehensive estate plan will typically have both a will and a trust, as it will have to meet different legal and financial requirements.
Are there ways in which a Trust will avoid probate?
Properly transferred assets typically don’t go through the probate process, but those assets not transferred may also go through probate, if no other method is applicable.
Conclusion
Clear understanding of what will vs. trust is a crucial component of estate planning. Both documents will help to ensure that your wishes are carried out when you pass away, but they are for different purposes. A will will be used to direct distribution of your assets after you passed away and specify guardians for minor children while a trust will manage assets during your lifetime, can be more private, and can prevent probate of the property held in the trust.
Whether to use a will or a trust will be based upon your financial resources, family needs and long-term plans. In most situations, a will and a trust go hand-in-hand, as well as other critical estate planning documents like powers of attorney and health care powers of attorney. Estate planning laws differ from state to state and from person to person, so it’s best to seek the guidance of an experienced estate planning lawyer to develop a plan that suits your needs.
