Wills and Trusts are Different. What is the Difference?

Wills and Trusts are Different.  What is the Difference?

Everyone has heard of Wills and Trusts. Most articles written on these topics, however, often presume that everyone knows the basics of these important documents. But, in reality, many of us don’t – and with good reason – as they’re rooted in complicated, centuries-old law.

Let’s face it, if you’re not an estate planning attorney, these concepts tend to remain merely that – concepts. So, if you’re “fuzzy” about wills and trusts, know that you are not alone. After we show you the difference between these two documents, we’ll tell you why a trust is the better choice.

Wills vs. Trusts: Defined

Let’s take a minute and define both “will” and “trust”:

Will. A will is a written document that is signed and witnessed. A will is considered a “death” document as it only goes into effect when you die.

A will:

• provides for the distribution of assets owned by you, but not assets directed to others through beneficiary designations (e.g. life insurance or retirement benefits)
• sends assets in your individual name or payable to your estate through the probate process
• allows you to appoint permanent guardians for your minor children
• names the person you wish to settle your estate (e.g. executor or personal representative)
• doesn’t always include protective trusts for beneficiaries and tax planning because many wills are simple 2-3 page documents
• permits you to revoke or amend your instructions during your lifetime
• tends to cost less than a trust on the outset but costs more to settle during court proceedings after death

Trust. A trust is a legal document, signed and witnessed, and effective during your lifetime, during any period of disability, and after death. Because the trust is effective during your lifetime and you can change it, it’s referred to as a “living” document.

A trust:

• has lifetime benefits
• provides for the distribution of your assets
• avoids probate if fully funded
• provides for a successor trustee upon your death or incapacity
• allows for the management of your property – even if you’re incapacitated
• can address appointing disability guardians for minor children
• often includes protective trusts for beneficiaries and tax planning
• permits you to revoke or amend your wishes during your lifetime
• costs more than a simple will on the outset but much less upon administration, while typically providing significantly more value

The Probate Process: A Key Element in Deciding Between a Will and Trust
One key element in deciding between a will and a trust is understanding the probate process. The term “probate” – which literally means “proving” – refers to the process wherein a decedent’s will must be authenticated, outstanding legitimate debts paid, and assets transferred to the beneficiaries.

The downside is that probate can take a long time – even years – it’s expensive in many places and the entire process is completely public, meaning your nosey neighbor Nancy and evil predator Paul both know exactly who got what and how to contact them. In virtually all cases, the only upside of probate is that creditor claims are cut off.

• Probate Guaranteed with a Will. If you use a will as your primary estate planning tool, you own property in your individual name, or property is made payable to your estate, probate is guaranteed.
• Probate Avoided with a Trust. If you use a fully-funded trust as your estate planning tool, probate is avoided – saving your family time and money.

The Bottom Line on Wills vs. Trusts
HOW TO DECIDE: As everyone’s situation is different, it’s important to analyze every aspect of your situation – and what the future may hold – so that you can determine what’s right for you and whether probate avoidance, incapacity planning, and trust protections have value to you and those you love. Most people receive the greatest overall benefit from having a trust.

What Revocable Living Trusts Can Do – That Wills Can’t

• Avoid a conservatorship and guardianship. A revocable living trust allows you to authorize your spouse, partner, child, or other trusted person to manage your assets should you become incapacitated and unable to manage your own affairs. Wills only become effective when you die, so they are useless in avoiding conservatorship and guardianship proceedings during your life.

• Bypass probate. Property in a revocable living trust does not pass through probate. Property that passes using a will guarantees The probate process, designed to wrap up a person’s affairs after satisfying outstanding debts, is public and can be costly and time consuming – sometimes taking years to resolve.

• Maintain privacy after death. Wills are public documents; trusts are not. Anyone, including nosey neighbors, predators, and unscrupulous “charities” can discover the details of your estate if you have a will. Trusts allow you to maintain your family’s privacy after death.

• Protect you from court challenges. Although court challenges to wills and trusts occur, attacking a trust is generally much harder than attacking a will because trust provisions are not made public.

What Wills Can Do – That Revocable Living Trusts Can’t                     

• Name guardians for children. Only a will – not a living trust or any other type of document – can be used to name guardians to care for minor children.
• Specify an executor or personal representative. Wills allow you to name an executor or personal representative – someone who will take responsibility to wrap up your estate after you die. This typically involves working with the probate court, protecting assets, paying your debts, and distributing what remains to beneficiaries. But, if there are no assets in your probate estate (because you have a fully funded revocable trust), this feature is not necessarily useful.

What Both Wills & Trusts Can Do:

• Allow revisions to your document. Both wills and trusts can be revised whenever your intentions or circumstances change so long as you have the legal capacity to execute them.

WARNING: There is such as a thing as irrevocable trusts, which cannot be changed without legal action.

• Name beneficiaries. Both wills and trusts are vehicles which allow you to name beneficiaries for your assets.
• Wills simply describe assets and proclaim who gets what. Only assets in your individual name will be controlled by a will.
• While trusts act similarly, you must go one step further and “transfer” the property into the trust – commonly referred to as “funding.” Only assets in the name of your trust will be controlled by your trust.
• Provide asset protection. Trusts, and less commonly, wills, are crafted to include protective sub-trusts which allow your beneficiaries access but keep the assets from being seized by their creditors such as divorcing spouses, car accident litigants, bankruptcy trustee, and business failure.

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from DeWitt Law Firm, PLLC