Wills vs. Trusts: A Quick & Simple Reference Guide
Confused about the differences between a will and a trust? If so, you are not alone. While it is always wise to contact experts like us, it is also important to understand the basics. Here is a quick and simple reference guide:
What a Revocable Living Trust Can Do – That a Will Cannot
● Avoid conservatorship and guardianship. A revocable living trust allows you to name your spouse, partner, child, or other trusted person to manage your money and property, that has been properly transferred to the trust, should you become unable to manage your own affairs. A will only becomes effective when you die, so a will is useless in avoiding conservatorship and guardianship proceedings during your life.
● Bypass probate. Accounts and property in a revocable living trust do not go through probate to be delivered to their intended recipient. Accounts and property that pass using a will guarantees probate. 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. A will is a public document; a trust is not. Anyone, including nosey neighbors, predators, and the unscrupulous can discover what you owned and who is receiving the items if you have a will. A trust allows you to maintain your loved ones’ 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 a Will Can Do – That a Revocable Living Trust Cannot
● Name guardians for minor child. A will – not a living trust – can be used to name guardians to care for a minor child. Depending on the state law, there may be an additional writing that can be used to name a guardian; however, a revocable trust is not that document.
● Specify an executor or personal representative. A will allows you to name an executor or personal representative – someone who will take responsibility to wrap up your affairs after you die. This typically involves working with the probate court, gathering and protecting your accounts and property not owned by a trust, paying your debts, and giving what remains to your named beneficiaries. But, if there are no accounts or property in your individual name (because you have a fully funded revocable trust), this feature is not necessarily useful.
What Both a Will & Trust Can Do:
● Allow revisions to your document. Both a will and revocable living trust can be revised whenever your intentions or circumstances change so long as you have the mental ability to understand the changes you are making.
WARNING: There is such as a thing as irrevocable trusts, which cannot be changed without legal action. This is outside the scope of this discussion.
● Name beneficiaries. Both a will and trust are vehicles which allow you to name who you want to receive your accounts and property.
o A will simply describes the accounts and property and states who gets what. Only accounts and property in your individual name will be controlled by a will. If an account or piece of property has a beneficiary, pay-on-death, or transfer-on-death designation, this will trump whatever is listed in your will.
o While a trust acts similarly, you must go one step further and “transfer” the property into the trust – commonly referred to as “funding.” This is accomplished by changing the ownership of your accounts and property from your name individually to the name of the trust. Only accounts and property in the name of your trust will be controlled by the trust’s instructions.
● Provide asset protection. A trust, and less commonly, a will, is crafted to include protective sub-trusts which can allow your beneficiaries to receive some enjoyment and benefit from the accounts and property in the trust but also keeps the accounts and property from being seized by your beneficiaries’ creditors such as divorcing spouses, car accident litigants, bankruptcy trustees, and business failures.
While some of the differences between a will and trust are subtle; others are not. Together, we will take a look at your goals as well as your financial and family situation to design an estate plan personalized to your needs. Call us today to schedule your in-person or virtual consultation and let’s get started.