What’s the Difference Between a Will and a Trust?
Many people begin their entrance into estate planning with the goal of creating a will, or, specifically — making sure that life’s loose ends are taken care of upon passing away. Maybe you have children you want to ensure are cared for. Maybe you have a charity to which you want to leave your estate. Or maybe, you are just moving to a different state. Regardless of what prompted you planning your estate, a will is what most people associate those things with.
But as you start to delve into the process and do your research, you stumble across “living trusts,” and wonder: What situations are those for? Perhaps yours?
One of the most common misconceptions about trusts — and wills, for that matter — is that they’re only if you have many assets. The truth is that you don’t need a large estate to take advantage of either one. At a minimum, everyone needs a will. And, depending on the specifics of your situation, like the size and nature of your assets, and what you want to be done with them, even an estate worth $100k may be a good candidate to be managed by a living trust rather than simply dispersed with a will.
The goal of this article is to look at both wills and trusts, explain some of their similarities and differences, and provide some guidance into the factors you should consider when determining which one is right for your estate planning needs and goals.
What is a Will?
A will is an estate planning document where you outline how you’d like your assets distributed when you pass away. The transfer of ownership of most assets can be accomplished with a will. A will also allows you to designate guardians for your minor children or other dependents.
The document itself can be short and simple or lengthy and robust. As long as it’s notarized and signed in the presence of two witnesses who are not named in the will itself, you can create it yourself without an attorney.
What is a Trust?
There are many types of trusts, including irrevocable, testamentary, and others. But for the purposes of this article, we’re going to talk about living trusts. Also known as a revocable trust, these are more weighty estate planning tools that you can also use to name who gets your possessions when you die. You can add or remove assets at will, or dissolve the trust entirely — that’s the revocable part. While it functions similarly to a will, there are a few distinct differences.
One of the key things to understand about a living trust is that the assets you place in the trust are owned by the trust. While you’re alive, you are the beneficiary who controls and benefits from it all, but, on paper, the trust owns it. Your real estate, assets, and so forth are no longer titled to you, but rather the trust.
How you place property into the trust depends on what type of property it is. If it’s something with a title of ownership, like real estate or a car, the trust needs to be listed on the deed or title as the owner. If it’s a bank account, it needs to be registered to the trust. For other types of personal property, it’s usually sufficient to list them in a separate document — often called a schedule — which is attached to the trust document. While retitling property is relatively easy, it does take time and isn’t financially beneficial in all situations.
Is a Living Will the Same As a Living Trust?
No. These are two very distinct documents. A living will is the set of documents that outline your medical care and directives, including medical power of attorney, advanced health care directive, and a HIPAA authorization form. A living trust is an estate planning tool that essentially holds your assets and distributes them in accordance with your wishes when you die.
Wills vs. Trusts
A will is something everyone needs, regardless of whether a trust is also appropriate. But, in general, as your assets and estate become larger and more complex, so do the reasons for establishing a trust. So, really the question isn’t one or the other, it’s if you would benefit from having a trust in addition to a will.
Could You Benefit from a Trust?
|Do You…||Is a Trust Right for You?|
|Have Assets over $100k?||Possibly|
|Want to Avoid Probate?||Yes|
|Want Your Estate to Remain Private?||Yes|
|Need to Appoint a Guardian for Minors?||No|
Executor vs. Trustee: What’s the Difference?
Both wills and trusts have a person designated to manage everything when you die. With a will, this person is the executor. In a trust, they’re the successor trustee. Both have similar roles in that the executor makes sure that the stipulations in your will are carried out, and the trustee manages the assets in the trust. Sometimes, these parties work together, but typically, the same person is designated as both the executor and trustee.
Is It Better to Have a Will or a Trust?
Everyone needs a will, but not everyone needs a trust. Additionally, many people who have a living trust also have what’s referred to as a pour-over will alongside it. A pour-over will, as its name suggests, says that whatever possessions you have upon death will be transferred to the trust. It’s an easy way to make sure that all your possessions go to the trust.
So, the question is not really which one is better, but rather if a living trust is right for you. There are a number of factors to consider when deciding if it’s beneficial to create a trust.
There’s a misconception that creating a will is a strategy for avoiding probate. This is false. Even with a will, your estate will go through probate. A living trust, however, can avoid probate because the property it holds and distributes is not subject to probate. This means that your wishes are carried out faster and your property gets to your beneficiaries quicker. There are no court dates and no judge. The trustee simply carries out your wishes.
A will can be done quickly and cheaply. While it’s not the ideal situation, many people experience downturns in their health where they need to get their estate in order — fast. A trust is more complex than a will, involves retitling assets, and it’s simply more time-consuming to create. In contrast, a will can be set up quickly. With The Postage, you can create a fully executable will in as fast as ten minutes.
Many want their affairs to stay private and away from prying eyes. If keeping the details of your estate private after your death is a priority for you, then establishing a living trust is the way to do it. Your will can become public record in probate court — revocable trusts stay private and their details don’t have to be divulged.
If you’ve been following the news, you might have heard about Britney Spears and the difficulty she’s had with being placed under a conservatorship. This isn’t an evaluation of her situation, but the short description of a conservatorship is that if a person is deemed mentally unable to care for themselves, the state can put someone else — a conservator — in charge of their affairs, including finances. However, if your assets are in a trust, then your trustee maintains control over them. This can be an extremely important item to consider, especially since people in a conservatorship don’t often get a say in who the conservator is.
Naming Guardians for Minor Children
One of the situations where both a will and a trust is appropriate is when it comes to minor children. While a trust can hold assets until they turn 18, or reach other ages or specified milestones in life, it cannot name guardians to care for them. This is done in a will.
Nobody wants to think about the possibility of becoming incapacitated, but the reality is that it happens to people every day. Accidents, unexpected illness — there’s no warning for these things. If you’re caught unprepared, it can make a bad situation much worse.
Trusts are typically better for someone who is incapacitated as they usually have a medical advance directive and a durable power of attorney accompanying them. Medical decisions can be made on your behalf when these documents are in place. Additionally, your trustee can manage your affairs while you’re unable. This isn’t possible with a will, which only comes into play upon your death.
Keep Current with Life’s Changing Currents
As the years go by, all sorts of factors in life change. You might move to a new house, add kids, or maybe the kids grow up. Or maybe something else entirely. Regardless, it’s important to make sure that your estate planning documents are real-time representations of your current estate.
Fortunately, both wills and revocable trusts are easily modified. Wills can be changed quickly, and property can be transferred to or from a trust. Whatever changes come along, keep your estate-planning documents current.
What If You Don’t Have Either?
Wills and trusts are the tools for you to be in charge of your life’s important decisions. If you don’t make them, they’ll be made for you. If you die without a will or trust in place, your estate will be subject to your state’s intestacy laws. This means the court will distribute your property to your next of kin. In the best of situations, it’s an avoidable hassle for the state to deal with. In the worst, an estranged relative may receive your estate. Additionally, if you don’t name guardians for your minor children, a judge will determine who takes care of them.
Whether you have a will, a trust, or both, one thing that is for certain is that proper estate planning is a responsibility we all share. It doesn’t matter if your estate is small or large, making sure your obligations are met after you die is on you. And it’s exponentially more important if you have minor children or other people who depend on you.
Need a Will? Create Yours in Minutes with The Postage
You might benefit from a trust, but you always need a will. If you haven’t created yours, now is the time. And you can get it done in minutes with The Postage. In fact, you can take care of nearly all your estate planning. Documenting final wishes, delivering post-death messages to your family, safely storing account passwords, and more — The Postage makes end-of-life planning easy and accessible to everyone.