Trust vs. Will: What's the Difference?
Trust vs. Will: What's the Difference?
When planning to leave a legacy, you will want to decide whether to create a trust in addition to your will. While both a will and a trust serve the purpose of managing and distributing your assets, they have some important differences. Below we explain a few key distinctions between a trust and a will, making it easier for you to understand their unique features and benefits.
Definitions and Purpose
A will, also known as a last will and testament, is a legal document that outlines your wishes for distributing your assets and taking care of your minor children after you pass away. It focuses on what happens to your property after you're gone.
On the other hand, a trust is a legal arrangement that allows a trusted person or entity (called a trustee) to manage and hold your assets on behalf of the beneficiaries you choose. A trust goes beyond just distributing assets after your death—it can be used to manage assets during your lifetime and help plan for situations when you might become unable to handle your own affairs.
2. Probate Avoidance
One big difference between trusts and wills is how they are handled after your death. A will may still need to go through the legal process called probate. This involves the court verifying the will, appointing a personal representative, paying off any debts, and then distributing assets to the rightful beneficiaries. Probate can be time-consuming, public, and may involve costs like court filing fees and attorneys’ fees.
On the other hand, assets properly titled into a trust can skip the probate process entirely. Because the trust legally owns the assets, the assets can be managed and distributed according to the terms of the trust document without court oversight. This results in a faster and more private transfer of assets.
3. Control and Flexibility:
Wills give you control over what happens to your assets after your death. You can specify who gets what, appoint guardians for your minor children, and name a personal representative to carry out your wishes. However, wills are limited to providing instructions for after your death. They do not provide for the management of your assets while you're alive or planning for incapacity.
Trusts provide greater control and flexibility. With a trust, you can set detailed conditions for distributing assets to beneficiaries, such as the age at which you would like your heirs to inherit. Trusts can also cover lifetime management of your assets, including situations where you might be unable to handle your own affairs. By appointing successor trustees, you ensure someone you trust will take care of your assets according to your wishes.
4. Privacy and Confidentiality:
Wills become public record once they go through probate. This means anyone can access the details, including your assets, beneficiaries, and their shares. If you prefer to keep your financial affairs private, this lack of privacy might be a concern. Trusts, however, offer more privacy. Since they avoid probate, the details of your trust and its assets generally remain confidential. Trusts provide a discreet way to transfer assets to beneficiaries without the risk of public disclosure.
5. Cost Considerations:
The costs associated with wills and trusts differ. Creating a will is typically less expensive up front. However, probate can add extra costs, such as court fees and attorneys’ fees, depending on the complexity of your estate and state laws.
Trusts typically have higher initial costs because of the creation and administration involved. But in the long run, they can save money (and by avoiding probate expenses. Certain types of trusts may also provide benefits like asset protection, tax planning, and potential savings on estate taxes.
Summary: Trusts and wills are important tools for planning your estate, but they have distinct purposes and advantages. Wills focus on post-death asset distribution and guardianship, while trusts offer flexibility for managing assets during your lifetime, planning for incapacity, and maintaining privacy. Understanding these differences will help you create an estate plan that meets your specific needs and goals.