Understanding the Differences Between Wills and Trusts
Everyone has heard the terms “will” and “trust,” but not everyone knows the differences between the two. Both are useful estate planning devices that serve different purposes, and both can work together to create a complete estate plan.
An easy way to understand the difference between a will and a trust is that a will does nothing for you while you are alive, but a trust can help protect and manage your property right away – while you are alive – and can act as a will substitute when you die. A will is a document that directs who will receive your property at your death and it appoints someone you trust to carry out your wishes. By contrast, a trust can be used to begin distributing property before death, at death and/or afterwards.
A trust is a legal arrangement through which you give a person (or an institution, such as a bank or law firm), called a “trustee,” legal title to your property and instructions on how to manage your property for yourself and/or for other beneficiaries you name. A trust usually has two types of beneficiaries — those who receive income from the trust during their lives (you and your spouse, for example) and those who inherit whatever remains after the first set of beneficiaries dies. By using a trust, you can draw income from it while you are alive and then leave the remaining assets to your loved ones when you die.
A will covers any property that is only in your name when you die. It does not cover property you own with others, like your spouse, or property in a trust. A trust, on the other hand, covers only property that has been transferred to the trust. In order for property to be included in a trust, it must be put in the name of the trust.
Another difference between a will and a trust is that a will passes through probate. That means a court oversees the administration of the will and ensures the will is valid and the property gets distributed the way the deceased wanted. Assets in a trust are passed on to beneficiaries outside of probate, so a court does not need to oversee the process, which can save time and money. Unlike a will, which becomes part of the public record, a trust can remain private.
Wills and trusts each have their advantages and disadvantages. For example, a will allows you to name a guardian for children and to specify funeral arrangements, while a trust does not. On the other hand, a trust can be used to plan for disability or to provide savings on taxes.
A qualified elder law attorney can tell you how best to use a will and a trust in your comprehensive estate plan.