Wills and trusts are two essential estate planning tools that serve distinct purposes. While both documents allow individuals to dictate how their assets will be distributed after their death, they operate differently and offer different benefits.
The following are the key differences between wills and trusts, highlighting their functions, advantages, and limitations.
Wills: The Basics:
A legal document known as a will or last will and testament is used to express a person’s final wishes regarding the distribution of their assets after death. The will designate an executor responsible for following the testator’s instructions. The testator can modify or revoke the will during their lifetime, as it is revocable. The will only becomes effective after the testator’s death and must go through a legal process called probate to be validated and executed.
Trusts: The Basics:
Unlike wills, trusts immediately take effect upon their creation and allow individuals (grantors or settlors) to transfer their assets into a separate legal entity called a trust. The trust is managed by a trustee, who holds and distributes the assets to the beneficiaries as specified in the trust agreement. Due to their flexibility and privacy, trusts avoid the lengthy and public probate process. There are various types of trusts, including revocable living trusts, irrevocable trusts, and testamentary trusts, each serving specific purposes and offering different advantages.
Key Differences:
- Probate: The probate process is one of the most significant differences between wills and trusts. Wills typically require probate, which involves court supervision and can be lengthy, expensive, and subject to public record. In contrast, trusts bypass probate, allowing for a more efficient and private distribution of assets.
- Privacy: Wills are public documents, meaning the terms and provisions become part of the public record during probate. In contrast, trusts offer enhanced privacy since they do not go through the probate process, and their details remain confidential.
- Flexibility: Wills are generally straightforward documents that outline the testator’s wishes for asset distribution. Conversely, trusts provide greater flexibility and can encompass various instructions, such as the management of assets during the grantor’s lifetime, disability planning, and special provisions for beneficiaries.
- Immediate Effect: While a will becomes effective only after the testator’s death, trusts are active immediately upon creation. This means trusts can provide management and asset protection benefits during the grantor’s lifetime, whereas wills solely govern posthumous asset distribution.
- Assets Subject to the Document: Wills cover all individually owned assets in the testator’s name, whereas trusts require assets to be transferred or re-titled to the trust. Trusts can hold various assets such as real estate, investments, bank accounts, and personal property.
In summary, wills and trusts are vital tools in estate planning, each with distinct characteristics and benefits. Wills are effective after death and undergo the probate process, while trusts take immediate effect and can help avoid probate. Trusts offer more privacy and flexibility and can provide management benefits during the grantor’s lifetime. The decision to choose a will or a trust depends on individual circumstances, including the complexity of assets, privacy concerns, the desire for control, and the need for asset management. It is advisable to consult with an experienced estate planning attorney to determine which option best aligns with your specific goals and requirements.