At BruegelPC, we often get asked about the difference between a will and a trust. Both are powerful tools for managing your estate, but they serve different purposes. While a will only comes into play after you pass away, a trust can be used while you are still alive. Join me as I break down these two important documents and help you understand which one might be right for your situation.
According to the American Bar Association, a will takes effect only after death, while a trust can be used during a person’s lifetime and after death.
A will must go through probate, a court-supervised process, but a trust can often avoid probate.
A trust usually offers more privacy than a will.
Definition of a Will
A will enables you to dictate the posthumous fate of your possessions and even decide who gets your pet goldfish.
To put it briefly, a will can include instructions on who will take care of any minor children and your wishes for your funeral. To be valid, a will must follow certain legal rules. The person making the will must be mentally sound and not forced into it. Having a will makes sure your wishes are followed and can make things easier for your loved ones when handling your estate.
In basic terms, you should review and update your will as your life changes, such as getting married, having children, or getting new assets. If you don’t have a will, state laws will decide how your things are divided, which might not match your wishes. Without a will, there may also be family disputes and stress.
In short, a will is an important document that helps ensure your wishes are respected after you die, giving you and your loved ones peace of mind.
Definition of a Trust
A trust ensures a trustee manages assets or property transferred by the trustor for the beneficiary’s benefit.
Primarily a trustee is someone who is responsible for looking after someone else’s assets, following the rules set out in a trust document. Trusts are often used to plan how a person’s belongings will be managed and shared after they pass away. There are various kinds of trusts, such as revocable trusts, irrevocable trusts, and charitable trusts. Each type serves a different purpose and offers varying degrees of control and flexibility.
Honestly, trusts can protect assets, offer privacy, and provide tax advantages. This makes them a popular choice for people who want to manage and pass on their wealth to future generations. In short, trusts are a useful tool for estate planning. They help individuals meet their financial and personal goals while ensuring their assets are handled and distributed as they wish.
Key Differences Between Will and Trust
Building upon the previous idea, a trust can take effect during a person’s lifetime, whereas a will only comes into play after death.
At its simplest, a will only becomes active after the person has passed away, and it needs to go through the probate process.
A trust is a legal setup where someone (the grantor) gives their assets to a trustee to manage for the beneficiaries. Trusts can be made while the grantor is alive or after they die. Unlike wills, trusts usually avoid the probate process.
One big difference between a will and a trust is that a will becomes public record once it goes through probate, but a trust can stay private. In general, a will only works after the person dies, while a trust can start while the grantor is still alive and continue after their death.
One of the main benefits of a trust is that it can skip the long and expensive probate process. Trusts also offer more control over how assets are shared out. However, setting up a trust can be more complicated and costly than making a will.
In short, the key differences between a will and a trust are when they take effect, whether they go through probate, and how much control and flexibility they offer over asset distribution.
Benefits of Having a Will
As we agreed before, having a will ensures your assets are distributed according to your wishes and can help prevent family disputes.
As a rule, having a will helps your loved ones know exactly what you want after you pass away. If you don’t have a will, state laws and the courts will decide how to divide your stuff, which might not be what you wanted. A will can prevent family fights and make things easier for the people you care about.
To put it briefly, it can speed up the legal process and save your family money. Plus, it makes sure your belongings go to the people you choose. In short, making a will is an important part of planning for the future and offers many benefits for you and your loved ones.
Benefits of Having a Trust
Refer back to our earlier statement, a trust can offer significant advantages, such as asset protection and efficient estate planning.
Basically, one big advantage of using a trust is that it helps you avoid probate, a long and expensive legal process that happens after someone dies. By putting your assets into a trust, you can distribute them to your heirs without going through probate. This makes it faster and simpler for your beneficiaries to get their inheritance.
Another benefit is privacy. When a will goes through probate, it becomes public and anyone can see it. In contrast, a trust is private and doesn’t have to go to court, which keeps your personal and financial information confidential. In concise terms, a trust also lets you control how and when your assets are given out. You can set specific rules for distributing your money and property, which is useful if your heirs are children or need special care.
On top of that, a trust can help lower estate taxes. The assets in a trust are not part of your taxable estate, so this can reduce the overall tax burden.
In short, having a trust can make estate planning easier, give you more control, keep your affairs private, and save on taxes.
In Final Consideration
Based on what we established, in essence, the key distinction between a will and a trust lies in when they take effect and how they address the distribution of assets.
What BruegelPC is recommending to talk to is, while a will only goes into effect after a person passes away and goes through the probate process, a trust can manage assets during one’s lifetime and can offer more privacy and control over asset distribution. Ultimately, choosing between a will and a trust depends on individual preferences and estate planning goals.