The Differences Between a Will and a Trust and What You Should Know
When taking the first steps in estate planning, the question of whether you need a will or a trust will arise immediately. When answering this, keep in mind that a will is a legal document you leave to direct your beneficiaries exactly how you want your property dispersed and your affairs handled after death. While similar, a trust is a legal document that secures your assets under trust ownership and allows for a third-party to become a trustee over the trust, naming a beneficiary to receive property through said trustee. As a result, a trust ensures the security of specified assets in the future by taking effect over its distribution immediately, rather than after death like a will.
What you Need to Know About Wills
It is important for everyone to have a will because it legally coordinates the distribution of your assets and affairs, to your desire, after death. Without a will your property will be disbursed by the state as determined by state laws during a lengthy process called Probate.
During probate, a court oversees the management of your will to ensure its validity.
While having a will ultimately secures the transfer of your personal affairs and property after death, a will also safeguards who receives legal guardianship of a minor in your care. Additionally, for business owners, having a will can secure the official transfer of ownership of any business you leave behind.
By naming an Executor, the management of your affairs is handled by someone you trust. This person then takes on the responsibility of meeting your wishes in the distribution of your property as well as handling many things such as funeral arrangements and debt compensation.
- Takes effect only after death
- Ecompasses entire estate
- Determines who receives assets after death
- Goes through Probate
- Public Record
- Generally less expensive
What you Need to Know About Trusts
A trust helps to protect and manage your estate while you are alive. One major difference between a will and a trust is that a trust protects the assets and property within it at all times, not just after your death.
Unlike wills, trusts only secure the distribution of specified assets like property or life insurance policies and do not cover guardianship or the entirety of your holdings.
Because of this, wills and trusts commonly work together to ensure your property, assets, and loved ones are totally protected.
It’s important for you to keep in mind that a trust can be expensive to establish and maintain over its lifetime, therefore a trust works best with larger estates. However, because a trust binds the rules of itself, it does not go through the process of probate, making the distribution of assets faster than a will. While trusts save your loved ones from additional court fees by avoiding probate, a trust can also ensure they do not pay additional estate taxes.
- Takes effect immediately
- Beneficiary can receive property before death
- Does not go through probate, little to no court involvement
- Trustee holds legal title to property for beneficiary
- Only property within the trust is covered
- Private, not publicly recorded
Whether having a will is right for you, or building and maintaining a trust is your best choice, remember that wills and trusts can be used individually or together to secure the future of your estate. It’s important to note that a will can instruct an Executor to create a trust, or move assets into an existing trust; they can work hand and hand to help you feel confident in the security of your property while living, after death, or in the event of incapacitation.