Proper estate planning ensures that your assets are distributed according to your wishes after your death. While there are plenty of ways to plan your estate, two common tools used in estate planning are wills and trusts.
While wills and trusts similarly direct how your assets are handled, they differ significantly in certain areas. Understanding the difference between will and trust vehicles allows you to make informed decisions that align with your goals.
What Are Wills?
A will is a legal document outlining your wishes in case of death. It can serve as a blueprint for how you want your estate to be handled and provide clear instructions to your executor, the person you choose to manage your estate.
Functions of a Will
There are generally two primary functions for a will:
- Asset Distribution: You can specify how your assets will be distributed among your heirs.
- Guardianship of Minors: A will also allows you to name a guardian for any minor children you may have. Without a will, the court decides your child’s guardian, which may not always align with your wishes.
Probate Process
After your death, your will must go through probate for validation before the distribution of your assets. Before your heirs can receive their inheritance according to your will’s terms, the probate court ensures that your debts are paid.
While probate can provide some oversight, it can also be time-consuming and costly. Additionally, the probate process is public, meaning that the details of your estate, including who inherits what, become a matter of public record.
Limitations of a Will
- Limited Applicability: A will only covers assets solely in your name at the time of your death. You cannot bequeath jointly owned property, retirement accounts, or life insurance policies with a will.
- No Effect Before Death: A will has no control over your assets during your lifetime. It only comes into play after your death, which means it cannot help manage or protect your assets while you are alive from creditors.
- Subject to Probate: A will does not avoid probate, which can be a lengthy, costly, and public process. Your heirs do not receive anything until after your death and until probate is complete.
What Are Trusts?
A trust is a legal arrangement that allows you to transfer ownership of your assets to a trustee, a third party who manages the asset on behalf of your beneficiaries. Trusts can be highly flexible and offer several advantages, particularly when managing assets during your lifetime.
Types of Trusts
There are two primary types of trusts:
- Revocable Trusts: Also known as a living trust, you can alter or revoke this trust at any time during your lifetime. This gives you control over your assets while providing a mechanism for distribution after your death. It also allows you to avoid probate.
- Irrevocable Trusts: You cannot alter or revoke an irrevocable trust once established. This removes assets from your estate, effectively reducing taxes and protecting assets from creditors.
Comparing Wills and Trusts
When deciding between a will and a trust, it’s important to consider these factors and how they play a difference between will and trust plans.
Costs
| Wills | Trusts |
| Creating a will is less expensive than setting up a trust. However, the costs associated with probate can add up, potentially reducing the overall value of your estate. | Trusts can cost more than a will, however, savings from avoiding probate and potentially reduced estate taxes can offset these upfront costs. |
Complexity
| Wills | Trusts |
| Wills are relatively straightforward to create but can be difficult to administer. They are suitable for individuals with smaller estates or simple asset distribution plans. | Trusts can be more advanced and best suited for individuals with larger or more complicated estates or those who desire to avoid probate. |
Control
| Wills | Trusts |
| You retain full control of your assets during your lifetime. However, after your death, your will must undergo probate, which can limit the speed and privacy of asset transfers. | Trusts offer more control over how and when assets are distributed during one’s lifetime and after one’s death. This can be important for protecting assets and managing wealth. |
Trust vs. Will vs. Both: Which Should I Use?
The decision to use wills and trusts ultimately depends on your needs, goals, and estate.
When To Use a Will
- Simple Estates: A will may be sufficient if your estate is relatively small and you have straightforward asset distribution wishes and are okay with your loved ones going through the probate process.
- Guardianship of Minors: Wills are essential for naming guardians for minor children, which cannot be done through a trust.
When To Use a Trust
- Avoiding Probate: If avoiding probate is a priority, assets in trusts can bypass probate.
- Complex Estates: Trusts provide more flexibility and control for estates.
When To Use Both
- Comprehensive Planning: Combining a will and a trust offers the best protection and flexibility. A will can cover any assets not included in the trust and address guardianship, while the trust can manage assets during your lifetime and after your death.
Seek Professional Estate Planning Guidance with a Wills and Estate Lawyer
Wills and trusts are powerful tools in estate planning. Understanding the difference between will and trust is crucial for making informed decisions that align with your goals and the needs of your beneficiaries. The right estate planning strategy can provide peace of mind for you and security for your loved ones.
The experienced attorneys at Wiles Law Firm can guide you through a personalized estate plan that protects your assets and secures your family’s future. Schedule a free consultation and take the first step toward securing your legacy.