Confused about the differences between a will and a trust? If so, you are not alone. While it is always wise to contact experts, 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. However, even a will can be paired with power of attorney documents to help avoid the likelihood of conservatorship or guardianship proceedings.
- 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. However, even under a will-based plan, the estate will avoid probate if the entire estate can be distributed through other non-probate mechanisms, such as beneficiary designations on IRAs and 401Ks, beneficiary deeds and titles on real property and other titled cars and boats, transfer on death designations on bank accounts, and so on. Often, however, this is not possible or not desirable.
- Maintain privacy after death. A will is a public document; a trust is not. Anyone, including nosey neighbors, predators, and the unscrupulous can discover that you have passed away, including the contents of your estate and your family as they pass through the will. A trust allows you to maintain your loved ones’ privacy after death as it does not need to be filed in court.
- 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. In Missouri, a power of attorney or other document may be used to name a guardian for a child. Powers of attorney are typically executed alongside both wills and trusts.
- 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. However, irrevocable trusts cannot typically be modified by the grantor; however, they are often subject to modification by a trust protector or through the process of decanting, both of which are beyond the scope of this article.
- Name beneficiaries. Both a will and trust are vehicles which allow you to name who you want to receive your accounts and property.
- 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.
- 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 while also keeping 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. Work together with an estate planning attorney to take a look at your goals as well as your financial and family situation to design an estate plan personalized to your needs.
