Trusts and wills are two of the most common estate planning documents used to provide for a family’s long-term financial security. Though superficially similar, they are in fact quite different legal instruments with distinct advantages and disadvantages. Understanding these differences is essential for anyone considering creating a trust or will to ensure that their wishes and goals are met.
A will is a legal document that outlines how an individual’s assets should be distributed after their death. It is typically used to provide for heirs, assign executors, and make charitable donations or other final requests. Wills are generally straightforward documents that can be created without the help of an attorney.
On the other hand, a trust is a more complex legal instrument that can serve many different purposes. The primary purpose of a trust is to manage assets on behalf of another person or entity (the “grantor”), usually for the benefit of the grantor’s family or another beneficiary (the “trustee”). Trusts can be used to protect assets from creditors, minimize tax liabilities, provide for minor children, and more. Depending on the type of trust established, various restrictions may be placed on how the trust assets can be used for the beneficiaries.
The primary differences between trusts and wills come down to control and flexibility. Wills go into effect at death and provide no control over how assets are managed during life. Wills can be changed and or revoked at any time provided the testator has capacity. Trusts, on the other hand, can provide much greater control over how assets are managed during life as well as after death. Furthermore, they can be modified or revoked, provided the terms of the trust allow for the sameand the persons making changes have capacity, if circumstances change or new goals arise.
In terms of cost, trusts tend to be more expensive than wills due to the complexity of the instrument. In addition, since trusts must be funded with specific assets in order to take effect, there may also be cost associated with transferring ownership of those assets into the trust itself. On the other hand, wills tend to be relatively inexpensive and easy to create without professional help.
Another difference is that wills go through the public court process known as “probate.” This process is how a will gets allowed, a personal representative gets appointed and assets can be distributed. Generally, a trust is private and does not involve the court.
For most people considering estate planning options, creating a financial and medical power of attorney and a will are the minimum essential documents needed to protecttheir family’s financial future. Though they have distinct advantages and disadvantages compared to each other, wills and trusts can each play an important role in providing for loved ones after death while possibly minimizing tax liabilities throughout life. Understanding these differences is essential for anyone looking to create either document so that their wishes are properly carried out according to their own specific wishes and goals.