While you may be familiar with the terms “will” and “trust” in relation to estate planning, do you know the difference between the two? How about the safety of your loved ones and your possessions? Do you know which plan will provide the most reliable coverage? This article discusses the differences between a trust and a will, as well as which option is best for you.
What is a Will?
A will, or “last will and testament,” is a legal document that specifies how your assets will be managed after your death. The creator of a will, known as the testator, must be an adult of sound mind. After making their final decisions, testators choose an executor or executrix to manage their estate. Guardianship of minor children or pets, distribution of property and assets to beneficiaries, and implementation of funeral arrangements are all examples of estate distribution.
Your will can direct any asset that is held in a single name. Assets owned jointly, such as JTWROS accounts, pass to the surviving co-owner upon your death.
Each state has its own wills laws, but most require that a written will be signed or executed by the testator and two witnesses before it becomes legally binding and effective.
What is a Trust?
Creating a trust establishes a separate legal entity and fiduciary relationship, allowing the trust’s creator, known as the grantor, to hold assets for his or her own benefit or for the benefit of a third party, the beneficiaries. If the grantor becomes unable to manage the trustor dies, he or she can appoint a successor trustee.
The grantor has more control over how assets are distributed with trusts. For example, if parents want their children to inherit income only at certain times or to care for a special needs child, these wishes can be fulfilled through trust.
It is important to note that you cannot name guardians for minor children in a trust, only in a will. This is one of the most common reasons why some people combine wills and trusts.
What is the Difference Between a Will and a Trust
While wills and trusts share many similarities, they also have several differences. But, in the end, both are ways to specify who will receive your assets. They simply do it in different ways, each with its own set of advantages and disadvantages.
One significant difference between the two is when and how they take effect. Wills are not effective until you die, whereas trusts are effective immediately upon signing and funding them.
It may be simpler to consider a Will as a “simple” document. You will be able to:
- Designate guardians for children and pets.
- Determine where your assets will go.
- Make final arrangements.
Read Also: LIVING WILL FORM: A Comprehensive Guide for US Citizens
While making a Will is simpler, there are some drawbacks to this method. Wills, for example, provide only a limited amount of control over asset distribution. After you die, they will almost certainly have to go through some sort of probate process. Trust is more complicated but can be beneficial. Trusts:
- Give you more say over when and how your assets are distributed.
- Apply to any assets held in the Trust.
- They come in a variety of shapes and sizes.
Remember that after you create a Trust, you must fund it by transferring assets to it, thereby making the Trust the owner. This makes Trusts a little more difficult to set up, but keep in mind that Trusts have one major advantage over Wills. They’re frequently used to reduce or avoid probate entirely, which is a huge benefit for some people. This alone could more than justify the added complexity of establishing Trust.
Why Trust Is Better Than a Will?
When comparing Wills and Trusts, keep in mind that they have very different and specific benefits. Assuming one is “better” than the other is neither accurate nor helpful. At the start of the process, you should assess your situation, your goals, and your needs. Only then will you be able to find the solution that best suits and protects your family.
A will does not take effect until you die, whereas a living trust becomes active once it is established and funded. This means that a trust can protect and direct your assets if you become mentally incapacitated, which a will cannot.
Can You Have Both a Will and a Living Trust?
Yes, because they serve different purposes, you can have both a Will and a Living Trust. Trusts manage and distribute your assets both during your lifetime and after your death. In contrast, a Will allows you to name guardians for your children, appoint an executor for your estate, and state your final wishes. What is actually more important to understand is the type of Will to have in conjunction with a Living Trust in order to have the most comprehensive Estate Plan.
Assume you have both a last will and testament and a living trust. This is not always advised, and here’s why: The assets that are only mentioned in your Last Will and Testament will almost certainly have to go through a lengthy probate process; not to mention that the last wills and testaments are public documents. In contrast, assets included in a trust are typically shielded from the probate court.
Read Also: NUNCUPATIVE WILL: Best Practice in the United States (+ All You Need To Know)
The Pour Over Will has arrived. Most Revocable Living Trusts (including those available through Trust & Will) include a Pour Over Will, which is a type of Will designed to work in tandem with your Trust. With a Pour Over Will, anything a person owns outside of their Trust, as well as anything subject to their Last Will and Testament, will be paid to their Trust upon their death. Pour Over Wills serve as a backup plan to ensure that all of your assets are transferred to your Trust.
Keep in mind that there are key distinctions between a living will and a last will in that they have to be probated, which means that a court has to watch over how the assets are given out. will, and a pour. A living will is a collection of documents pertaining to a person’s medical decisions. These documents include the following:
- Advanced Health Care Directive Medical Power of Attorney
- Form for HIPAA Authorization
- When you join Trust & Will, the Living Will documents listed above are provided whether you buy a Trust or Will.
What Are the Pros and Cons of a Will Versus a Trust?
Pros of Will
Wills are typically less expensive and simpler to draft than trusts. If your estate is small, the costs of setting up the trust may be more than what you save by not having to go through probate. Furthermore, you won’t have to worry about retitling any of your assets or any of the other formalities that come with putting your assets in a trust. Lastly, if you use a will and are worried that your assets won’t be divided the way you want, the court will have to watch over your estate.
Cons of Will
Will have a significant disadvantage in that they must be probated, which means that a court must oversee the distribution of assets. This increases the cost and length of the process. Furthermore, the court documents are public records, so anyone can go to the courthouse and see how your estate was distributed. Furthermore, your will does not take effect until you die, so you cannot use it to name someone to care for you if you become incapacitated; you must use other documents to do so.
Pros of Trust
With a living trust in place, your assets can be transferred to your heirs without having to go through the costly and time-consuming probate process. This keeps your estate’s privacy and speeds up the distribution of your will, especially in states with complicated probate laws. If you own property in more than one state, a trust can transfer the assets without the need for additional legal proceedings. You may need to go through ancillary probate proceedings in other states if you have a will. Lastly, trust documents go into effect right away, so you can include instructions for your end-of-life care and a guardian in case you become unable to care for yourself.
Cons of Trust
The most difficult aspect of trusts is establishing them. Trusts are generally more expensive to prepare than wills because they require you to retitle your assets in the name of the trust, which takes time and money. If you do not retitle your assets, they will not pass through the trust and instead go through probate. Trusts don’t protect assets in any special way, and they also don’t help with estate taxes in any special way. Assets in your revocable trust can still be taken by creditors.
What Is One Disadvantage of a Will Over a Trust?
Even though it costs less and is easier to write, a last will and testament have a number of problems. To begin with, it requires your family to go through the probate process after you die, which is both time-consuming and costly. All states with real estate require probate. After the probate process is over, your will and a list of your financial assets are made public. A last will and testament only apply to assets you own yourself. It doesn’t cover life insurance or assets with a signed beneficiary designation. Lastly, a last will and testament doesn’t leave much room for customization and doesn’t protect your heirs from creditors or other people who might try to take advantage of them financially.
What Are the 4 Types of Trust?
#1. Irrevocable Trusts
An irrevocable trust cannot be changed unless all of the beneficiaries agree. At first glance, it may appear that irrevocable trusts are never a good idea, but they can be quite beneficial in certain situations. The majority of people who create irrevocable trusts do so for tax reasons. Furthermore, because they can protect against lawsuits and creditors, irrevocable trusts can be beneficial for those who work in a litigious profession, such as doctors or lawyers.
#2. Living Trust
A revocable trust is another name for a living trust. You establish it during your lifetime, and your beneficiaries benefit after you die. While living trusts can help your loved ones avoid the time-consuming and often costly process of probate, they are not an effective asset protection tool while you are still alive. True, assets in a living trust are more difficult to access, but they could still end up in the hands of creditors during your lifetime. It is not without flaws.
#3. Joint Trust
When two people want to create trust together, a joint trust is the best option. A married couple would benefit from this type of relationship. During their lives together, both partners can keep control of the assets, and when one of them dies, the other automatically takes over as Trustee.
#4. Testamentary Trusts
A testamentary trust, also known as a “will trust” or a “trust under will,” is created within a will and does not take effect until your death. In your last will and testament, you tell people how to set up the trust at the right time. Testamentary trusts are not considered living trusts because they are not viable documents until you die (hence the term “Remember that testamentary trusts must go through probate, and you will lose some of the privacy protection that other trusts can provide, both of which are significant advantages of trusts in the first place.
Conclusion
It’s important to create a will early in life. Wills, trusts, or both can be used to ensure that your assets and possessions end up where you want them to go. If you have minor children, you must have a will in order to name guardians for them. If setting up and maintaining a trust doesn’t cost too much for your assets and goals, it can settle your estate faster than a will and keep your assets private.
Related Articles
- TESTAMENTARY TRUST: Definition, Examples, Requirements
- BUSINESS TRUST: Definition, Pros & Cons, and How To Set It Up
- Family Trust: Definition, Types & How To Set Up One
- WILL AND TRUST: Meaning & Difference
- Holographic Will: How to Write Holographic Will, Explained!!!
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