The Difference Between a Will and a Trust
- February 13, 2015
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One question on our estate planning blog that often comes up when people begin their estate planning is the difference between a will and a trust. Both are ways for a person to leave instructions regarding how assets should be distributed following death, but there are some important differences. Understanding some of the ways that a living trust differs from a will can help individuals determine the best one to meet their needs.
Difference Between a Will and a Trust With Probate
The primary difference between a will and a trust is that a will must go through probate before assets can be distributed to the heirs and a trust does not. Probate can be time-consuming and expensive, so avoiding probate is the most common reason people choose trusts over wills. Costs associated with probate may include attorney’s fees, appraiser fees, and filing fees. In many cases, these costs comprise approximately 5 to 10 percent of the total estate. Notifying heirs can also take time. Probate might take as long as a year.
Probate is also public. Individuals who prefer to keep their affairs private often prefer to use a revocable living trust instead so their details of their finances are not public record. Creditors have the ability to come forward and make claims against the estate during probate. If any of these claims are disputed, the process could take longer and cost even more in attorney’s fees. In some cases, the court may hire an investigator to determine the legitimacy of the claim. The investigator’s fee is also paid by the estate, leaving less money for the heirs.
Difference Between a Will and a Trust With Execution
The process of creating a will is different from establishing a living trust. In most states, a will may be a fairly simple document, as long as it is witnessed and signed by the appropriate number of people. Living trusts need to establish a trustee, lay out that person’s duties, and explain what how the trustee should manage the assets. This can make the document more complicated than a simple will. Living trusts must be signed in front of a notary, instead of any uninterested adult witness.
Difference Between a Will and a Trust With Logistics of Set up
Another difference between a will and a trust is that property must be transferred into the trust to fund it. Real estate and cars must be retitled in the name of the trust, as can bank accounts. Personal property or items without deeds or ownership documents can be listed and attached to the trust documents.
Finally, the difference between a will and a trust is a will speaks at the time of death. If a person’s assets change, it may no longer be effective to dispose of everything. A living trust is effective as soon as it is created and funded. The trustee will be able to manage assets during a person’s lifetime. A trust therefore provides more protection in this scenario.
A financial advisor may be able to determine whether a living trust or will is better to meet an individual’s stated objectives. Some people benefit by having a living trust to dispose of some property and a will to distribute later-acquired or unlisted assets.
If you need help strategizing a plan specific to you and your family’s needs, email us at email@example.com or call (888) 538-5872 for a free 30 minute consultation.