Will vs Trust: What are the Differences?

Protecting your assets is an essential part of a wealth management plan. Asset protection is primarily done by creating an entity or structure that has a legal status. There are a number of estate planning options available, choosing the one that will best suit your needs can get overwhelming.

In this article we will try and mark out some of the main differences between a will and a trust to see what may be right for you.

What is a Will?

A will is a legal document that specifies the distribution of your assets to your family members or loved ones after you pass away. Generally, a will allows you to: 

• Allocate your assets and properties to your beneficiaries
• Appoint an executor to ensure your affairs are settled according to the terms indicated in your will
• Assign a guardian for your dependents
• Fund and plan your funeral

To be effective, a will should be drawn up through an estate planning attorney and authenticated through a probate hearing, a court-supervised process. A will allows you the option to revoke or amend your will any time after it has been executed. A Will allows you the ability to plan for who gets your estate, ensures that your wishes will be carried out and allows courts to intervene on the wills behalf to ensure the will is carried out should any disagreements arise. 

What is a Trust?

A trust is a legal entity designed to managed by a trustor who gives authority of asset ownership over to a trustee for the beneficial owner or third party.

You also have the option to either manage the trust on your own or assign the management to an individual or corporate entity. 

A trust is used as a vehicle to protect a personal property that is unnegotiated from an individual. The most common use of trusts are for asset protection, privacy and estate planning. 

Different Types of Wills

The different types of Wills are:

• Holographic Will - written by the author
• Oral Will - made through speaking his/her wishes
• Pour-over Wills - Combination of trust & will entity
• Mutual Will - draw together by a couple

Different Type of Trusts

There are many different types of trust, each having it's own unique structure and arrangements:

• Special Needs Trust
• Spendthrift Trust
• Tax By-Pass Trust
• Revocable Trust
• Irrevocable Trust
• Asset Protection Trust
• Charitable Trust
• Constructive Trust

Key Differences Between Wills and Trusts

Wills and trusts serve distinct functions in estate planning, with fundamental differences in privacy, probate requirements, flexibility, and asset control. These differences impact their effectiveness for specific estate planning needs.

Public Record vs Privacy

A will becomes part of the public record after death, allowing anyone to access information about the deceased's assets and beneficiaries through courthouse records.

Trusts maintain privacy by keeping asset distribution details confidential. The terms, assets, and beneficiaries remain private during the grantor's life and after death.

This privacy protection makes trusts particularly valuable for high-net-worth individuals or those seeking discretion in their estate planning.

Probate Process vs Avoidance of Probate

Wills must go through probate, a court-supervised process that validates the document and oversees asset distribution. This process can take months or years and often incurs significant legal fees.

Trusts bypass probate entirely, enabling faster asset distribution to beneficiaries. Assets held in trust transfer directly to beneficiaries according to the trust's terms.

The probate avoidance feature of trusts can save considerable time and money for beneficiaries.

Flexibility and Amendments

A will can be modified or revoked at any time during the testator's lifetime through a codicil or new will.

Revocable trusts offer similar flexibility, allowing modifications while the grantor lives. Irrevocable trusts generally cannot be changed after creation.

Trust amendments typically require less formal documentation than will changes.

Control Over Asset Distribution

Trusts provide precise control over asset distribution, including the ability to set specific conditions for inheritance and manage distributions over time.

A trustee can manage assets for minors or beneficiaries with special needs without court intervention.

Wills offer more limited distribution options, typically providing for one-time transfers after death.

Trusts can include provisions for incapacity planning, allowing seamless asset management if the grantor becomes unable to manage their affairs.

Key Differences 

Effort required - Assembling a trust is both time-consuming and expensive whereas wills don't need any ongoing management and are easier to create but are less flexible.

Privacy - Once filed in the court for probate hearing, the will becomes a public record.

Cost - The set-up fees associated with will make it an appealing option for many. However, trust gives beneficiaries the luxury to skip the probate process. 

Function - When it comes to function, it pays to remember that one cannot replace the other. The primary focus of trust is the distribution of specific assets.

Advantages and Considerations

Estate planning tools offer distinct benefits and require careful evaluation based on individual circumstances and objectives. Each option presents unique advantages while addressing specific family and financial situations.

Advantages of Wills

Wills provide straightforward and cost-effective estate planning solutions. They require minimal initial setup costs compared to trusts.

A will allows for clear designation of guardians for minor children, ensuring their care and protection after a parent's death.

Wills offer flexibility with modifications, allowing updates as life circumstances change. The testator can easily revise beneficiary designations or asset distributions through a simple amendment process.

Advantages of Trusts

Trusts provide immediate access to assets for beneficiaries, bypassing the time-consuming probate process. This feature ensures swift distribution of assets while maintaining privacy.

Living trusts enable effective management of assets during incapacity. A successor trustee can step in to handle financial matters without court intervention.

Spendthrift provisions in trusts protect beneficiaries from creditors and poor financial decisions. These provisions help preserve wealth across generations.

Benefits of a Living Trust

Establishing a trust to manage the estate has several benefits:

• With a living trust, you will not go through a probate process. Probate is an asset distribution process that's performed by the court. Avoiding probate can help your beneficiaries save time and money. Since living trusts are not considered public information, the assets are distributed in private.
• Can reduce taxation, increase privacy and divide assets and property between entities
• Trusts are more flexible can be amended, changed or disbanded

Will vs. Trust: Which One is Best for You?

Choosing to create a Will or a Trust will likely depend upon your circumstances and what your final goals might be. Creating a will is likely to be more focused on setting your affairs in order after your passing whereas trust is much more versatile and can be used in different capacities.

Get in touch see what is right for you.

Frequently Asked Questions

What are the key distinctions between a will and a trust in terms of legal and financial implications?

A will becomes effective only after death and requires probate court supervision to validate and execute the document. The probate process can take several months and incur significant court fees.

A trust takes effect immediately upon creation and allows assets to transfer directly to beneficiaries without court intervention. This private transfer process typically costs less than probate and moves more quickly.

In what scenarios is establishing a trust more beneficial than creating a will?

Trusts work best for individuals with substantial assets or complex estates requiring sophisticated tax planning. They provide excellent options for those seeking to maintain privacy in their estate matters.

Trusts offer particular advantages for individuals who own property in multiple states, as they eliminate the need for probate proceedings in each jurisdiction.

Can you outline the potential drawbacks of choosing a trust over a will?

Trusts require more extensive initial setup costs and ongoing maintenance compared to wills. The creation process demands careful attention to detail in transferring assets into the trust's name.

Professional assistance may be necessary for proper trust administration, adding to the overall expense.

What are the primary tax implications when deciding between a trust and a will?

Certain types of trusts can help reduce estate tax liability through strategic asset distribution during the grantor's lifetime. Irrevocable trusts may offer particular tax advantages by removing assets from the taxable estate.

Living trusts generally do not provide immediate tax benefits, as they remain part of the grantor's taxable estate.

Which offers more advantages in estate planning - a trust or a will - and what are they?

Trusts provide superior control over asset distribution, allowing for staged inheritance based on beneficiary age or specific conditions. They offer immediate access to assets for beneficiaries upon death.

Wills maintain simplicity and lower initial costs for basic estate planning needs. They allow for straightforward asset distribution and guardian designation for minor children.

How does the efficacy of a trust compare to a will in protecting assets and managing estate affairs?

Trusts offer stronger asset protection against creditors and legal challenges. They maintain privacy by keeping estate matters out of public record.

Trusts provide flexibility in managing assets during incapacity, allowing for seamless transition of control to successor trustees.

Estate management through trusts continues without interruption after death, ensuring consistent asset administration according to the grantor's wishes.