Will vs. Trust: What’s the Difference?
Your hard-earned assets must go somewhere after you die, but how do you plan where they will be distributed?
Wills and trusts are estate planning tools that provide instructions on the distribution of your assets. These documents essentially outline who gets what. Although both a will and trust protect your assets and provide detailed instructions on the distribution of your assets, that does not mean they are exactly the same.
The primary difference between and will and trust is that assets outlined in a will are subject to probate. Such property includes real estate, stocks, intellectual property, cars, jewelry, etc. Probate is a court process that occurs after you pass away. It ensures your will is valid and your property is transferred to the right people at the right time. In other words, probate ensures the instructions in your will are carried out properly. A probate judge will also ensure your debts and taxes are paid off.
In addition, your will must name your executor, beneficiaries, and guardians for your minor children. An executor is the administrator of your will, beneficiaries are the people you select to receive certain assets, and guardians are the people who you appoint to take care of your minor children (under 18) when you die.
A trust, on the other hand, is not subject to probate and becomes effective during your lifetime unlike a will, which is subject to probate and is only effective after you die. Trusts are typically more elaborate and personalized to the grantor’s wishes while they are living and when they die. A trust names the grantor, trustee(s), and beneficiaries, but no guardians. Thus, if you have minor children, you should draft a will.
The grantor creates the trust and has the power to transfer property in and out of it. The trustees are the people or organizations who act in the best interests of the grantor and beneficiaries by administering property or assets according to the instructions in the trust. The beneficiaries are the parties who are entitled to the assets outlined in the trust; they essentially receive the assets.
The two types of trusts are revocable trusts (also known as living trusts) and irrevocable trusts. Revocable trusts become effective immediately and can be modified at any point. However, irrevocable trusts are effective immediately and cannot be changed or modified thereafter. Although revocable living trusts are more popular, irrevocable trusts are often used to help avoid estate taxes, meaning your estate and any income generated from your assets are not taxable after you die.
What to Consider for Your Will and Trust
Many people create a will and trust, not one or the other. However, a good lawyer will help you understand your estate planning options according to your current and long-term goals.
Wills can cover everything in your estate and allow you to appoint a guardian for your minor children. But wills must go through the probate process to become validated and effective. Probate is notoriously lengthy, complex, and costly, and it is difficult to avoid when you have a will. Although, your attorney could potentially help you find ways to avoid the probate process altogether.
Trusts can be revocable or irrevocable. In either case, grantors usually don’t transfer all of their property to a trust, but the property they do transfer to their trust is subject to modification if it’s a living revocable trust. Your property and instructions cannot be changed with an irrevocable trust, however.
Need help deciding which estate planning options are right for you? Our Louisville estate planning lawyer can guide you through your legal options and help you draft a valid, effective will and trust. Get started on planning your legacy today by contacting us at (502) 947-3931!