Difference Between A Will and Trust

Wills or Trusts: Which is Better

What Is a Will?

In estate planning, a person’s will refers to the legal document they leave behind when they die. This document explains everything they want to happen to their estate when they die. It includes instructions for distributing the money to the heirs and beneficiaries and guardianship for the deceased’s minors.

What is a Trust?

In estate planning, the trust refers to a document communicating an individual’s legal arrangements for their assets. The documents set the terms for how the trust creator’s assets and estate will be managed and distributed to heirs and beneficiaries.

Wills and Trusts: When They Take Effect

Wills:

Wills take effect when the creator of the will – also known as the testator—dies. Effecting a will includes filing it at the county court where the deceased last lived. The courts then trigger the probate process, allowing the executor – the person in charge of the will—to implement it based on the decedent’s wishes.

Trusts:

Unlike wills, trusts can start functioning immediately when the creator of the trust – also known as the grantor—moves assets to them. The grantor can create a living trust when they are still alive. They can also leave instructions for creating a testamentary trust soon after they die.

Wills vs Trusts: Types

Wills:

There are many different types of Wills you can choose from. However, many people choose to work with the last will. If you want to know the different kinds of wills, here is an overview.

• Last Will: This is the most popular and straightforward of all wills. It details how the deceased wishes their assets to be divided among relatives and children. It also guides how they want to be sent off.
• Living Will: It provides end-of-life instructions, especially for medical care. It is used to anticipate the incapacitation of the deceased – helps tell the loved ones what they would prefer when it comes to things like assisted dying.
• Testamentary Trust Will: The deceased leaves instructions for forming the testamentary will after they die. The document then guides asset distribution and long-term care for heirs and beneficiaries.
• Pour-Over Will: This is a will that can be used together with a trust. The will states that a few assets will go into the trust and others to the beneficiary. Pour-over wills are good for planning short-term and long-term care for the beneficiaries.
• Joint Wills: These are wills by two different people. It could be two spouses who want either to be a beneficiary after one dies. The surviving one can then establish the final beneficiaries, such as a child, charity, or relative.

Trusts:

Like wills, there are many different types of trusts. The cost of a loving trust is the most affordable. A qualified estate planning attorney can help you choose the right estate planning instrument based on your unique financial and succession goals.

• Revocable trusts: These are trusts that the grantor can create, then edit and do it over again. They are amendable- hence the name revocable. You can create a revocable trust for use before and after you die. The trust document names a trustee who takes over when the grantor dies or is incapacitated. It also provides instructions for the transfer of assets. Assets in a revocable trust are not passed through probate.
• Irrevocable Trust: With this type of trust, you cannot amend or terminate it once you create it. The assets moved into an irrevocable trust cannot be moved back into the estate. The irrevocable trust document has instructions for appointing the trustee and successor trustees. The grantor cannot function as the trustee. The grantor doesn’t pay taxes on the assets and income from an irrevocable trust. The assets are also unreachable to the grantor’s creditors.
• Charitable Trusts: These are a type of irrevocable trust that you set up specifically to leave your assets to a charity. You reduce the tax burden on your finances by using a charitable trust to give to charity. These types of trusts can also be set up to provide income or interest while financing your chosen charity organization. You may choose between a charitable lead trust and a charitable remainder trust. The charitable lead trust gives money to the charity for many years, and then, at the end of the set term, the remaining assets go to the beneficiaries. A charitable remainder trust gives money to the grantor for many years – Then, at the end of the set term, the remaining assets go to a charity of their choosing.
• Special Needs Trusts: You can set up a special needs trust to care for the financial needs of a disabled loved one. Under normal circumstances, some types of financial support to a disabled loved one can make them ineligible for further financial assistance from federal and state funds such as the SSI. But when you use a special needs trust, they can receive extensive financial support from you and still be eligible for state and federal support.

Will vs. Trusts Functions

Just as there are many different types of wills and trusts, there are also many other functions of these two documents. Below can help explain the difference between wills and trusts:

Wills:

The primary purpose of a will is to leave instructions for the care and provision of loved ones after you depart from this world. Some of the essential functions include;

• Dictate who gets what assets: Creating a will lets you decide who will receive certain assets when you die. You can include children, family, friends, charity organizations, and other non-relative beneficiaries.
• Eliminate succession stress and disputes: A will can significantly reduce disputes regarding the distribution of your assets, making the process easier and faster for your loved ones.
• Choose an executor you trust: With a will, you can appoint a trustworthy person to ensure that your loved ones are taken care of according to your wishes.
• Appoint guardians for young children: You can specify guardians for your underage children in your will, ensuring they are cared for by someone you trust.
• Set of wishes for funerary arrangements: You can include instructions for your burial or cremation, aligning with your beliefs and values.

Trusts:

The primary function of a trust is avoiding probate. Trusts help keep your affairs private when you die.

• Avoiding probate: Trusts can bypass the probate process, keeping the distribution of assets private and not a matter of public record.
• Safeguard inheritance from creditors: A trust, especially an irrevocable one, can protect assets from creditors, both during your lifetime and after your death.
• Trusts offer more control: Trusts can have detailed instructions on how and when beneficiaries can access their inheritance.
• Generational wealth: Trusts can be structured to benefit not only your immediate heirs but also future generations, preserving generational wealth.
• Minimize taxes: Trusts can be used to reduce inheritance and income taxes, helping to grow and preserve your assets.

Will or Trust: Which is Better?

There are many differences between a will and a trust. They differ in nature, function/purpose, duration, and advantages. If you are considering estate planning, consulting with an experienced attorney is advised. They can help you plan your estate for succession, reduce taxation, and preserve and grow wealth.