The Difference Between Wills and Trusts

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They’re both legal documents, and they can both be used to protect your assets and provide for your loved ones. Wills and trusts are equally important tools for estate planning, but many people are vague on the differences between them. The first thing to know? Wills and trusts aren’t mutually exclusive. You might need both.

What a Will Does

In the broadest terms, a will determines how your affairs are handled when you die. When you create a will, you can specify what you want to happen to your assets and property. This document can be used to spell out who inherits things like art, jewelry and furniture.

For parents of minor children, a will can also be used to name a guardian. In the event that the parents die before the children reach adulthood, the courts will generally defer to the parents’ wishes when appointing a legal guardian. A will is the proper place to name your chosen guardian for your children.

It’s important to keep in mind that not all assets can be transferred using a will. Property that you jointly own with a spouse, for example, will automatically be transferred to the surviving co-owner. Similarly, an insurance policy that has a named beneficiary will be paid to that beneficiary, regardless of what you put in your will.

What a Trust Does

Trusts are a little more complicated than wills, simply because there are several different types. A trust is a financial agreement that gives a person or organization (the trustee) control over property on behalf of one or more beneficiaries. There may also be a third party called a grantor who funds the trust. The trustee makes sure that assets included in the trust are passed to the beneficiaries in keeping with terms laid out in the trust agreement.

For example, a parent might decide to create a trust as a way to provide for a disabled adult child. The parent would act as the grantor by funding the trust, and could then specify how much money the disabled child should receive each year, how that money is paid out and what conditions the child has to meet (if any) to receive the money. The parent who creates the trust would also choose a trustee to oversee the trust, distribute the assets and take care of any legal requirements like tax filing.

Differences Between the Two

Several key differences separate wills and trusts.

•    Your will only goes into effect upon your death. It has no legal bearing while you’re alive. By contrast, a trust can go into effect immediately after its creation.
•    A will is subject to probate, a legal process that requires the person’s heirs to get court approval before accessing any assets. Probate can take months and involves hefty court fees. The process can also be emotionally trying, especially if there is any family disagreement about the estate. Probate files are also public. Trusts usually avoid probate, which simplifies things and allows the family to maintain privacy.
•    While the specifics vary from will to will, these documents are typically fairly boilerplate. There’s a lot more variety in trusts. For one thing, a trust can be either revocable or irrevocable. A grantor who creates a revocable trust controls the assets and can change the terms of the trust at any time. However, a grantor who establishes an irrevocable trust can’t easily change the terms and gives up control of the assets.
•    Trusts can also be used for more purposes than wills can. A will has just a few functions, and again, they only become relevant at the time of the creator’s death. A trust can be used to do things like provide for a disabled person, support minor children in the event that their parents die, fund charitable endeavors, minimize tax liabilities and protect assets from creditors.
•    The roles of personal representative and trustee are different. When you draft your will, you may name a personal representative, formerly known as the executor, of your choosing. This person is responsible for overseeing the settling of your estate. Typically people choose adult children, siblings or other loved ones to act as personal representatives. Trustees have similar responsibilities, but must be willing to provide ongoing oversight of the trust for potentially many years. Family members can also be trustees. However, grantors often choose attorneys, financial advisors or even corporate entities like banks to serve as trustees.

Choosing Between a Will and Trust

Because they serve different purposes, a will and a trust can both be part of a comprehensive estate plan. Executing a will allows you to clarify your wishes about your property and who inherits what. Creating a will is a must for anyone with minor children. You may or may not benefit from establishing a trust, too. They’re not just for the wealthy: people of all ages and financial standings benefit from these tools.

We know that there’s a lot of confusion around wills and trusts. We’re here to demystify the estate planning process. The attorneys at Ladimer Law Office PC specialize in helping clients of all ages make the plans they need to create the future they want. How can we help you with your will and trust needs? Contact us today!