What Are the Differences Between a Will And Trust?

The complexity of estate planning often boils down to two central tools: wills and trusts. Though they may seem similar, as both are legally binding documents instructing how your assets should be managed or distributed, they are quite distinct in function, setup, administration, and more.

Formation and Effectiveness

Let's consider when these tools come into play. A last will and testament, usually called a will, is a legal document that details your wishes regarding the distribution of your assets after you pass away. A last will and testament will only become effective upon death. In your will, you name an executor who carries out your wishes outlined in the document.

A trust can be effective as soon as it's created and assets are transferred. A trust's creator is typically called the settlor or trustor. The trustor appoints a trustee, who has the legal duty to manage the trust property for the benefit of the beneficiaries. Trusts can be set up to operate while you are alive (living trusts) or to activate upon your death (testamentary trusts).

Probate Process

One significant difference between a will and a trust is how they are administered after your death. A will must go through the probate process, a court-supervised process to inventory your assets, pay off any debts or taxes and distribute the remaining property as the will instructs, which can become a time-consuming, costly, and public process many try to avoid.

Trusts, however, bypass the probate process entirely. Because the trust owns the assets and the trustee has the authority to distribute them according to the trust terms, no court supervision is needed. This can result in a quicker, less expensive, and more private distribution.

Privacy

Privacy is another critical distinction. Because probate is a public process, a probated will become a public document. Anyone can access it and see the contents of your estate and to whom you left your assets.

Trusts, conversely, are private documents. The details about your assets and who you've chosen to leave them to are not public records. For individuals concerned about privacy, this is a significant advantage of trusts over wills.

Control Over Assets

When discussing control over assets, a will only govern assets in your name at your death. Assets held jointly with rights of survivorship, in a trust, or with a named beneficiary (like insurance policies or retirement accounts) are usually not controlled by the will.

A trust, however, can hold various assets, which dictates how they are managed — whether during your lifetime, upon your incapacity, or after your death.

Planning for Incapacity

On the point of incapacity, a will does not include a provision for this possibility. If you were to become physically or mentally incapacitated and could not manage your own affairs, a will would offer no assistance. The court would likely step in and appoint someone to handle your affairs.

A well-drafted trust, however, typically includes provisions for your potential incapacity, detailing how your assets should be managed if you cannot do so yourself. This can save your family the stress and expense of a guardianship proceeding.

Wills and trusts serve different but equally important roles in estate planning. Each has pros and cons, and their usefulness depends on your specific circumstances and goals. Though the differences can be complex, understanding clearly is crucial to ensure assets are handled according to wishes.

Understanding the Value of an Estate Planning Attorney

In estate planning, everyone's situation is unique. You might have straightforward needs, such as leaving everything to your spouse or children. Or, your situation may be more complicated with a blended family, a sizeable estate, or a family business, or you might have specific instructions for care and support if you become incapacitated.

Estate laws can be complex, and they vary greatly by state. Certain strategies that work well in one state might not in another. There are also federal laws to consider, such as those concerning taxes. An experienced estate planning attorney understands these laws and keeps abreast of the latest changes that might affect you.

DIY wills and trusts can seem like a cost-saving measure, but they may cost your heirs more money. If your documents are not legally valid because they weren't executed correctly, or if the wording is ambiguous, it could lead to disputes that must be settled in court. Professional legal advice can help ensure that your documents are legally sound.

An estate planning attorney can also coordinate with your financial advisor and accountant to ensure that your estate and financial plans align. This can help minimize estate taxes and avoid unintended consequences.

Ultimately, having a professionally drafted estate plan gives you peace of mind. You can have confidence that your wishes will be carried out, your loved ones will be taken care of, and any potential confusion or family discord can be avoided. Consulting with an experienced estate planning attorney is a worthwhile investment for the security it provides you and your loved ones.