A Trust and a Will are both useful tools in the estate planning process; however, the differences between the two are not always clear and there are advantages and disadvantages to both.
What is a Trust?
A Trust is a legal arrangement, with trustees, who hold power on behalf of designated beneficiaries. A trustee can be a person or an institution such as a bank or a law firm. A trust usually names two sets of beneficiaries: the first set of beneficiaries typically receives income from the trust and the second set usually received whatever remains of the estate once the first set of beneficiaries dies.
What is a Will?
A Will is a written document that allows you to dictate who will receive your property at the time of your death. It is revocable and subject to amendment at any time.
What are the differences?
One of the primary differences between a will and a trust is that a will takes effect only upon death, whereas a trust goes into effect the moment it has been created. A will covers property that is in your name only and does not cover property that is jointly owned or has already been placed in a trust. A Trust covers any property that has been transferred to the trust but the property must be put in the name of the trust in order to be covered. A will must go through probate which means a court will ensure the will is valid and that the property gets distributed in accordance with the decedent’s wishes; additionally, it is required to become public record. A trust, on the other hand, bypasses probate and is not required to be overseen by the courts nor does it have to be made public thereby saving time and money. Wills allow for you to name guardians for children and other dependents while trusts can be used to plan for disability and tax savings.
Will vs Trust Considerations
Do you have minor children? As mentioned before, a trust allows you to establish provisions that specify when a child is entitled to the assets within the trust.
Do you children or other dependents with special needs? A standard will allows your property to be passed on to your dependents heirs, but it doesn’t grant much control on how that property must be used.
Will your estate be subject to estate taxes? With frequently changing estate tax thresholds, you may want to consider establishing a trust with tax planning provisions.
So which option is best for you? Trusts and Wills can accomplish similar objectives. When choosing, it is important to know that one size doesn’t fit all. Your estate plan should always be prepared in the way that best meets your family’s needs.