Key Differences Between Trusts and Wills
January 4, 2021
Many people know that they need a will before they pass away, but what about a trust? What even is a trust? Why do we hear that a trust is better than a will for estate planning? In typical attorney-fashion, whether a trust is better than a will depends on each individual’s circumstances. Anybody that is trying to sell a trust to you without explaining why a trust is better for you really shouldn’t be recommending any legal documents for you at all. So let’s break down what a will is, what a trust is, and finally the key differences between the two and how to determine which tool is going to be most useful for you and your family.
What is a will?
A will is a legal document which lays out what you want to do with all of your probatable assets when you pass away. What are probatable assets? These are assets and/or property that fall under the legal power of your will. This can include your home (although there are exceptions to those who own property as joint tenants with right of survivorship), your personal property (such as cars, furniture, art, jewelry, stamp collections, etc.), and cash gifts. Things that typically don’t pass through a will include life insurance proceeds (because you have a private contract with your life insurance company), bank accounts (because you have already designated a beneficiary for that account), and trust property (any property you put into a trust). Wills can also include digital assets and online accounts- depending on what the terms and conditions of the company you have assets/accounts with. Wills are documents that are taken to court after the individual passes away and go through a process called “probate”. The court then supervises the administration of the decedent’s estate according to the terms of their will.
How to tell if a will is suitable for you and your family
If you don’t have a complicated estate and you don’t have complicated family circumstances, a will may be suitable for you and your family.
What is a trust?
Generally speaking, a trust is a private agreement between the person creating the trust (the settlor) and the person who will carry out the terms of the trust (trustee) for the benefit of a named individual (beneficiary). You can also include the same type of property and assets as you would put in a will into a trust. That means you can place your home, personal property, cash gifts, and digital assets into a trust. Trusts can also specify which asset is to be used for what purpose and can have assets distributed in portions at a time for a period of time. Trusts dictate what happens to assets and property that are specifically placed into the trust (trust property). Trusts do not take care of assets that are not specifically placed into the trust. Therefore, some individuals have a will in addition to a trust as a safety net to cover any property or assets they may acquire after the creation of a trust, but fail to place into the trust afterwards.
How to tell if a trust is suitable for you and your family
If you know you have a large estate, and you want to make sure that your estate won’t be squandered by your family members, then perhaps a trust is for you. If you want to leave money behind to someone you love, but know they will mismanage the money (blow through the money quickly), then a trust may be for you. If you have a special needs child and want to have planning for that child in the event you pass away, then a trust will likely be appropriate for you. If you are leaving money behind for someone who is currently a minor and you want to make sure that the money will be used for college, then a trust may be for you. If you have estranged family members and you want to be able to keep your assets away from them, then a trust may be for you. Remember, wills become a part of public record. That means that relatives (and even strangers!) can figure out that their rich uncle passed away and may be seeking to have “their share” of the estate.
Key Differences Between the Two
#1. Trusts are private, wills are public record. As previously mentioned, a trust is a private agreement. What does this mean? It means that you don’t have to take a trust to court like you do a will. With a will, you take it to probate court and it becomes a part of public record. That means anyone could look up your will after it goes through probate. Generally, you cannot administer the property in a will without going through probate.
#2. Trusts can manage assets for several years, wills distribute assets as a one time lump sum. Depending on who you are leaving your estate to, it may be better to set up a trust. A trust is appropriate for someone who is unable to manage money either because they are a minor, has little experience managing money (a college student who may blow through the inheritance), or someone who suffers from an addiction or substance abuse.
#3. Asset distribution of trusts are immediate. It can take from 12 months to 18 months for a will to be probated in court and finalize the distribution of a decedent’s estate.
#4. Trusts cost more up front, wills cost less up front. While trusts are more costly to draft initially, you can save court costs as you will leave less property for the probate court to supervise when the executor is administering the estate. Probate court is not free. You will have to pay a variety of court fees to have the will probated and those fees vary depending on the jurisdiction (the county of the decedent). Just filing a petition to have a will probated can cost you a few hundred dollars.
While the above doesn’t fully describe every detailed difference between a will and a trust, you hopefully now have a better idea between the basic functions of both documents. Perhaps you will stick to the idea of getting a trust or maybe you have decided that your current situation only calls for a will. Either way, you can now make a more educated decision and an empowered decision for both you and your family.