Sometimes people use these two terms interchangeably, when they are both distinct entities with their own characteristics. While a trusted estate planning attorney can help you understand the differences and help you create both, we’d like to go over the differences between these two important documents so you get a better understanding.
The biggest difference is that a will doesn’t go into effect until you die, whereas a living trust is active once created and then funded. Here are some more:
Wills
Wills are legal documents that outline what you want to happen upon your death. You can appoint people to receive your belongings, estate and cash, and you can appoint guardianship of your kids or pets. Simple wills are enough for most people, in that it will protect your family in the event you die.
One you die, the executor of your estate will pay any debts or taxes you owe, and fulfill your wishes as per the terms of your will (i.e., distribute assets, etc.) to beneficiaries. This is a court-supervised and highly-structured process known as probate and can be costly and drawn-out.
Whereas property left to beneficiaries in a living trust does not have to go through probate, property left to beneficiaries through a will must go through probate. This is why many people, especially those with a lot of assets, choose a trust so that the probate process doesn’t have to be a worry.
Trusts
In general, trusts offer greater control over how and when your assets are distributed, applying to any assets held inside the trust. For those with more than $1 million in assets, it’s a good idea to also create a trust. There are three main types of trusts:
• Living trust: This transfers your assets to loved ones easily and quickly, going into effect while you are alive. Remember we said above, wills go into effect only when you die. You can put many things in a living trust, such as cars, houses, bank accounts, real estate, jewelry, art, and even intellectual property. However, those assets are not accessible to loved ones until after your death.
• Revocable and irrevocable trusts: Revocable trusts allow you to change the terms of the trust, whereas with irrevocable, you can’t change the terms. As an example, with an irrevocable trust, the names of your beneficiaries for your property are set in stone and cannot be changed. Revocable trusts are the most common, but even with this type where you can change the terms, a lot of paperwork is involved, which makes it a time consuming process.
After creating a trust, now you have to fund it and that happens when you transfer assets into it. The Trust now becomes the owner, which adds a bit more complexity to the setup. However, the major benefit of trusts over wills is that they minimize or avoid probate and often provide protection from creditors and Medicaid.
So, should you get a will, trust or both? This will generally depend on how many assets you have. If you have a small estate with simple bequests and easily-transferred assets, a will is the most efficient and least expensive choice. If you have a large and complex estate, you may benefit by having both.
Contact Sayer, Regan & Thayer LLP for Estate and Trust Law
To learn the differences between a will and trust, and to create one or both with us, make an appointment when you call us for a free, no-obligation consultation at 866-378-5836. Our estate planning attorneys have many years of experience drafting and overseeing important documents such as wills and trusts.
These materials have been prepared by SRT for informational purposes only and are not intended and should not be construed as legal advice.