In estate planning, a will and a trust allow you to control how your assets are distributed after you die. However, they are different legal documents that serve different purposes.
Your will outlines how your assets will be distributed after you die. It is generally less expensive and less complicated to create than a trust. A will allows you to name an executor to manage your estate and distribute your assets according to your wishes. However, a will must go through probate, a court process that can be time-consuming and expensive.
Trusts are legal arrangements in which you transfer your assets to a trustee for their benefit. It is possible to avoid probate with trusts, which can be irrevocable or revocable. Trusts can also provide certain tax benefits and provide creditor protection. However, setting up a trust can be more expensive and complicated than creating a will.
The following are some key differences between a will and a trust:
Probate: One of the biggest differences between a will and a trust is how they are administered after death. Probate is a court-supervised process that ensures your debts and assets are distributed according to your wishes. Probate can be time-consuming, expensive, and public, meaning that anyone can access the information in your will.
In contrast, a trust avoids probate because the assets are owned by the trust, not you personally. When you pass away, the trustee simply distributes the assets to your beneficiaries according to the instructions you provided in the trust. This can be a faster, more private, and less expensive way to transfer assets.
Control: A will and a trust also differ in how much control you have over your assets. With a will, you have control over your assets while you are alive, but after you pass away, your executor is responsible for carrying out your wishes. This means that your executor can distribute your assets to your beneficiaries in a way different from what you intended.
With a trust, you have more control over your assets because you can specify how and when they are distributed to your beneficiaries. For example, you can create a trust that distributes assets to your children only after they reach a certain age or achieve certain milestones, such as college graduation. You can also specify who manages the assets in the trust and how they are invested.
Privacy: Probate is a public process, meaning that anyone can access the information in your will. This can be a concern if you value your privacy or have sensitive information you do not want to be made public.
A trust is a private document that is not subject to public scrutiny. This means that your beneficiaries, trustee, and anyone involved in the trust will be the only ones who know its contents.
Taxes: Another important difference between a will and a trust is how they are taxed. Despite what you may think, a will does not protect your assets from estate taxes, which are taxes assessed on your estate’s value after you pass away. If your estate is large and you live in a state that taxes estates, these taxes can be substantial.
A trust, on the other hand, can help you avoid or minimize estate taxes because the assets in the trust are owned by the trust, not by you, which means the assets are not included in your estate for tax purposes. Furthermore, certain types of trusts, such as irrevocable life insurance trusts, can provide tax benefits while you are still alive.
Cost: Creating a will is generally less expensive than creating a trust. A will is a simpler document that an estate planning attorney can create quickly and easily. In contrast, trust is a more complex document requiring more time and effort. Additionally, a trust may require ongoing maintenance, such as funding the trust and making sure any necessary changes take place in a timely fashion, allowing the trust to be compliant with the law and your wishes.
In summary, both a will and a trust can be important estate planning tools, each serving a different purpose and having its own benefits and drawbacks. A will is a simpler, less expensive way to transfer your assets, but it must go through probate and offers less control and privacy. A trust can help you avoid probate, provide more control over your assets, and offer tax benefits, but it is more expensive and requires ongoing maintenance. Estate planning attorneys can help you decide the best options for your situation.