Will vs Trust: What’s the difference

Estate planning is a critical process that ensures your assets are distributed according to your wishes after you pass away and the two primary tools used in estate planning are wills and trusts. Although they serve similar purposes, they function quite differently and offer unique benefits. Understanding the difference between a will vs trust is essential for anyone planning their estate.

What is a Will?

A will is a legal document that outlines how your assets should be distributed upon your death. It allows you to appoint an executor who will manage the estate and ensure that your assets go to the specified beneficiaries. Wills are simple to create and can also specify guardians for minor children, making them a fundamental element of estate planning.

Key Features of Wills:

• Activation Upon Death: Wills take effect only after the testator’s death.
• Probate Requirement: To be executed, wills must go through probate—a legal process in which a court oversees the will’s validation, the settlement of debts, and the distribution of the estate.
• Flexibility and Ease of Modification: Wills can be easily amended as long as the testator is mentally competent.

Pros and Cons of Having a Will:

• Pros:
  • Straightforward to draft.
  • Cost-effective.
  • Allows for the nomination of guardians for minors.
• Cons:
  • Must undergo probate, which can be costly and time-consuming.
  • Becomes public record, reducing privacy.
  • Does not cover incapacity planning.

What is a Trust?

A trust is a fiduciary arrangement where the trustor gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.

Types of Trusts and Their Features:

• Revocable Living Trusts: Can be altered or revoked as long as the trustor is alive. These trusts help avoid probate and allow the trustor to maintain control over the assets during their lifetime.
• Irrevocable Trusts: Once established, these cannot be easily changed; they are used to permanently remove the ownership of assets from the trustor, which can be beneficial for tax purposes and asset protection.
• Specialized Trusts: Such as Special Needs Trusts, Charitable Trusts, and Spendthrift Trusts, each serving unique purposes like protecting a beneficiary’s government aid or providing for charitable interests.

Benefits of Trusts:

• Probate Avoidance: Assets within a trust can be passed directly to beneficiaries without the need for probate, saving time and maintaining privacy.
• Incapacity Planning: Trusts can provide for the continuity of asset management in the event the trustor becomes incapacitated, without the need for court intervention.
• Control Over Asset Distribution: Trusts allow for detailed instructions on how assets are to be handled and distributed among the beneficiaries.

Drawbacks of Trusts:

• Initial Costs: Setting up a trust can be more expensive and complex than drafting a will.
• Maintenance Requirements: Trusts require ongoing management and must be funded properly to be effective.

Will vs Trust: Which Should You Choose?

The choice between a will and a trust depends largely on individual circumstances:

• Using a Will Alone: This might be sufficient for those with smaller, uncomplicated estates or for those who do not mind their estate going through probate.
• Opting for a Trust: Advisable for those seeking to avoid probate, manage privacy concerns, or who need to plan for incapacity or complex distributions.
• Combining Both: Often, having both a will and a trust is advisable. A will can cover any assets that may not be included in the trust, through a pour-over will that directs these assets into the trust upon the individual’s death.

The decision between a will vs trust is complex and depends on personal preferences, the size and complexity of your estate, and your financial and family situation. Consulting with a skilled will and trust attorney can provide clarity and direction, helping you choose the right tools for your estate planning needs, ensuring that your assets are protected and passed on according to your wishes. Whether you opt for a will, a trust, or both, the key is to tailor your estate planning to reflect your unique situation and goals.