When it's time to sit down and plan our estate, it's essential to know what different terms mean, such as trust vs. will, and how choosing between them can affect our final wishes. The terms trust vs. will are often confused, but considerable differences exist between these two estate transfer tools. Both wills vs. trusts are estate planning mechanisms that enable you to bequeath your assets to beneficiaries of your choice, and both methods enable your loved ones to handle your affairs with relative ease. But, when you look closely at trust vs. will, there are clear benefits and disadvantages to each that can help you decide which is right for you.
For example, a will is easier to create, while a trust may be time-consuming, expensive and needs to be managed going forward. A will has to face probate court, while a trust does not. A will can also be contested, but a trust rarely is. A will becomes active upon death, while a trust comes into effect as soon as the setup is complete. The differences between trust vs. will as methods of estate transfer are many, so we've put together an in-depth comparison of the two in hopes of making your estate planning decisions a little bit easier.
In this article, we will do a deep dive into the differences between living trusts vs wills. We'll talk about the cost and timeframe of creating a last will vs. living trust, what the different types of wills and trusts are and how you can make them work for you and your loved ones. If you're looking for some assistance in deciding between a living trust fund vs. will, stick around and let's get into it.
Wills and trusts seem pretty similar, but the differences between a trust fund vs. will are significant. These distinctions can help you to choose between the two. Using a trust vs. will doesn’t need to be a one or the other situation either. It is also possible to use both a trust and will in tandem to serve different needs.
A will is a written legal document that outlines your wishes. The fundamental purpose of this document comes into effect upon your death as it serves to be your voice in your absence. When used to express your preferences in handling your estate, your last will and testament can include what to do with assets, appointing guardians for minor-aged children, awarding legacy gifts to charities and more. A will can be contested and must go through probate court. When you use a will to distribute your assets after death, it becomes public record, accessible by anyone who desires the information.
On the other hand, a trust begins to serve its purpose as soon as the trust is set up, which means it comes into effect while you are still living. It is an agreement between you and the trustee, who is a party to whom the legal responsibility of your trust is given, in order to distribute your assets to your beneficiaries. Before any dispersal, the trustee will hold the title to the assets with that purpose in mind. Trusts are very rarely contested and do not have to go through probate court. However, between the two — trust vs. will — a trust is more complicated to set up than a will.
Many different types of trusts and wills exist and can serve niche purposes.
In short, a will is a legal document that outlines how you would like your estate to be dealt with upon your death. Of course, there is so much more to a will than that. Let's take a closer look at some of the details and specifics of wills.
A will can be created at home using tools found on the internet or kits purchased in a store. The entire process can take mere hours and cost just a few dollars, or can even be free. All you need is an internet connection, a printer and some paper. Choosing to do it yourself can work out fine for most Americans and will save you some cost. However, most legal and financial advisors will recommend seeking the assistance of a professional. An attorney will make sure all the loose ends are tied up; everything is done to the letter of the law, identify any potential problems and help you solve them. If your estate is at all complicated, filing your will with an attorney is the best choice.
When you create your will, you're going to list your assets, including everything you own. You'll want to list your physical property such as land, vehicles, homes, safety deposit box contents, cash and accounts. As well, list anything intangible in your name such as stocks, bonds, intellectual property and other assets. You'll also want to identify any debts you may leave behind. You may also use your will to appoint a legal guardian for your minor-aged children and caregivers for your pets.
There are several different types of wills. A simple will is easily accomplished on your own with online tools or a brief meeting with your lawyer. A testamentary trust will is used in conjunction with a trust. A joint will is a will for more than one person, and spouses often use joint wills. Finally, a living will allow you to lay out your preferences for medical situations where you may become unable to communicate your wishes.
One of the most important considerations for a trust vs. will is to use a will to name a legal guardian for minor-aged children in the event of your death. Without a will, your children could end up in the care of someone you may disapprove of. If a will is in place, your family can also avoid lengthy, drawn-out court proceedings to determine where your kids should be placed. Identifying a legal guardian is the easiest way to save your grieving family from the ongoing trauma of legal battles.
When choosing a guardian for your children, it's essential to speak with that person and find out how they feel about it. While minds can change in the future, especially after a big event like the death of a loved one, knowing where they stand now can help you choose whether or not to name them your children's legal guardian in the event of your passing.
You can also choose to name a second guardian, should your original selection be unable to serve in that capacity. If your choice for a legal guardian has significant life changes between now and when your will becomes active, they may no longer want to take on this role. Maybe they have children of their own now, or they don't live in a large enough home or have enough income to support your kids. Naming a second choice for guardianship of your kids will help ensure the fate of your children doesn't rest in the decisions of a judge.
Children have a statutory right to inherit from a parent in all states. Spouses have the same right to inherit from their partners, as well. However, it is possible in some states to disinherit one of your children or a spouse in your will. When you decide to disinherit them, they lose their statutory right to inherit any of your estate.
While this sounds like adverse action to take, there are plenty of well-meaning reasons to disinherit a child or spouse. For instance, perhaps you had an agreement with your son or daughter that you would give them their inheritance while you were still alive. Maybe you did so to help them put a down payment on a house or perhaps to pay for their education. To ensure your other children get their fair share, you might write the first child out of your will. You may also wish to disinherit your ex-spouse after you are legally divorced.
If you choose to take this action in your will, it's essential to know how the law works in your state. An estate planning lawyer can come in very handy to this end. They will know whether or not disinheritance is possible in your state and how it works, ensuring your will is legally sound and won't cause any problems in the wake of your death.
Children and spouses can dispute a statement of disinheritance in a will. Disputes of this nature often claim that the testator, or the person who wrote the will, was not of sound mind when they wrote the disinheritance, or they were under pressure from a third party to do so.
A major difference between trust vs. will is that your will lies dormant until your death. Once you have passed, the will comes into effect. Your last will and testament will be filed in county court by an appointed individual or your lawyer. States often have time limits for filing a will with the court, so this process can go by quickly. A petition is also filed for the court to approve the will. Once approved by the court, the will is in effect, which will begin the probate process. The executor you have named in your last will and testament will represent your best interests during this time. They will see that your assets are distributed in the way you have outlined in your will. One of the many differences between a family trust vs. will is that trusts do not see probate, while wills always do.
If you die without a will, intestacy laws in your state will kick in. Intestate is a term that refers to someone who died without a will. Intestacy laws are set up to help the court decide where your assets will go.
Most often, your assets will be divided up amongst your heirs, which can include your kids, your spouse, and numerous other family members. If you have no kids or partner, everything you own will go to your parents. If you die while you are legally married to a spouse, in most cases, all of your property will go to your spouse. If you are unmarried but have a partner, dying without a will can be devastating for them in many cases. Often, the property in your name that you shared with your partner will not be transferred to their name. Intestacy laws generally only consider family members as heirs.
It's never a good idea to leave your estate dispersal to the court, especially when you have strong opinions about where your property should end up. Proactively understanding a trust vs. will is the first step to ensuring that your estate is accurately transferred as per your wishes.
Probate court is the division of civil law in your state that deals with wills, trusts, guardianship, and conservatorships. When you file your last will and testament, the document is filed in probate court, giving the court the power to authenticate the will, setting your wishes in motion. The probate process includes:
Sometimes, the court may require an obituary in the local papers to alert any creditors who may not be listed in the will. The court will appoint an executor, who you can name in your will, and this executor will be responsible for seeing the will through probate court and dispersing the assets to heirs.
When you file a will in probate court, your filing is on the public record. That means that anyone can access the details of your will, including your assets, their worth, the guardianship of your children and anything else that you listed in your last will and testament. This is a downside to choosing a last will and testament vs. living trust.
Another downside to choosing a will vs. trust is that probate court can be expensive and deplete the assets in question. Some probate lawyers are costly, and if any legal issues pop up with your will, your heirs may see their inheritance shrink.
A trust is a fiduciary agreement between you (the grantor) and your trustee to oversee any assets intended for your beneficiaries. Your trustee is someone you legally appoint to hold title over the assets in the trust until they are dispersed to your heirs.
Trusts come in many different forms, but living trusts and testamentary trusts are the two main types. If you'll recall, we already talked about testamentary trusts as a form of will because this type of trust is created in a last will and testament.
Living trusts can be revocable or irrevocable. A revocable living trust is a trust created while the trustor is still alive, which can be revised as long as the trustor is able. Conversely, you cannot change an irrevocable trust once the trustor creates it.
Trusts are often used to avoid probate court costs and keep the details out of the public record. Trusts do not require probate to come into effect, which means no public court filings are detailing the specifics of the trust. If a trust is created to avoid probate, it is often a revocable living trust so that the trustor maintains ownership and title over the property in the trust and can change the specifics of the trust when needed—a huge advantage when it comes to living revocable trust vs. a will.
Testamentary trusts aren't created until the trustor has passed away and are formed as instructed in the grantor's last will and testament. Such trusts are often made when the distribution of the assets in question is dependent on certain conditions. For instance, testamentary trusts are used when a parent wants to leave their assets to their minor children who are not old enough to manage the assets themselves yet. So, the trust exists to disperse the property and funds held within when the beneficiaries become legal adults.
Trusts are not subject to probate court the way wills are. Wills must be filed and authenticated through the probate court system, whereas trusts can avoid court altogether. As such, a trust vs. will can save the deceased's family a lot of time, and it also means that the details of your estate won't be made public. When assets are contained in a trust and managed by a trustee, they can be dispersed directly to beneficiaries according to the details of the trust. There is no need for probate court—a substantial benefit trusts can offer when it comes to estate trust vs. will. Your loved ones will save money avoiding probate court and probate lawyers, and all of the details of your trust will remain private.
However, when you choose a testamentary trust, you must lay it out in your last will and testament. The will has to be filed in court to be verified and carried out, setting the trust in motion. This type of trust may be the choice for you if you want to leave a conditional trust for some of your beneficiaries.
There are a few more considerations when it comes to trusts that might help you make your selection between a trust vs. will. When you create a trust to disperse assets to beneficiaries, the trust becomes its own legal entity, which is effective the moment it's made. The creation of this legal entity is one of the most significant differences in the benefits of a trust vs. a will. If you create an irrevocable trust, the assets held within are no longer considered yours. They belong to the trust and are controlled by the trustee temporarily until such time as they can be dispersed to your chosen beneficiaries. They are, essentially, removed from your taxable property, which means they cannot be subject to estate tax when you die.
Further, any income generated by the assets held in an irrevocable trust is also not taxable in the grantor's lifetime. An irrevocable trust also shields the assets it controls from creditors, while a revocable trust does not. However, the main downside is that an irrevocable trust cannot be changed nor the assets accessed by the grantor during their life. When a grantor places his assets into an irrevocable trust, he essentially surrenders all ownership rights to the contents of the trust, which is an effect that happens the moment the trust is created. On the other hand, a will does not take effect until the testator has passed away.
Let's take a look at differences between a last will and testament vs. a living trust in estate planning:
In effect upon creation
Names guardians of minor-aged children
Can be contested in court
Revocable trusts: YesIrrevocable trusts: No
Details are public record
Easy to create or DIY
As you can see, there are more differences between an irrevocable trust vs. will than there are between a revocable trust vs. will. The pros and cons of an estate trust vs. will vary depending on your situation and the type of trust you choose. No matter your assets and property situation, there should be an estate dispersal option that suits your unique needs.
There is no doubt between a trust vs. will that creating a will is a far easier process than creating a trust. A will can be as simple as writing your wishes down on a piece of paper and having it notarized. There are multiple tools on the internet available to anyone who wants to create a will. Often, you will pay a small fee to download documents that make the process easy and painless. Even if you decide to seek the advice of a legal professional in the creation of your will, it is still going to be a relatively quick process, and the cost will be minimal.
Creating a trust, on the other hand, is far more complicated. You'll need to begin by deciding what kind of trust you want to set up and how you're going to do it. While it is possible to set up a trust on your own using tools online, it is advisable to use the services of an estate planning attorney. If you're opting to create an irrevocable trust, you will require the services of a legal professional.
To set up a trust, you'll have to create a trust document and have it notarized. Your trust document will have all of the details of the trust agreement laid out, and it will establish who the grantor is, what assets to include in the trust, who your beneficiaries will be, who the trustee is, and it will name a successor to the trustee should anything get in the way of them fulfilling their duties.
After your trust agreement is notarized, you'll need to set up a trust bank account and fund it with the assets laid out in the trust document. You will then need to transfer any other assets into the trust, which requires you to change the ownership of any property intended for your beneficiaries from yourself to the trust.
The cost of setting up a trust commonly exceeds that of creating a last will and testament. Trusts can begin at around $1,000 to set up, and that cost will increase with the complexity of the trust.
Now that we know the differences between wills vs. trusts, pros, cons and other considerations become apparent. There is no definitive answer when deciding if a trust vs. will is better. It will depend on your unique circumstances and the complexity of the asset dispersal you are trying to achieve. When you compare a revocable living trust vs. will, there are advantages and downfalls, and significantly different goals are achieved between a living will vs. living trust.
Most of us will need a will because it covers more than just assets. A will helps us ensure the wellbeing of our children and pets, for instance. Only some of us may need a trust, and those who do often choose to use both a trust and will when planning their estate. Your will can outline personal wishes to do with assets guardianship for children and pets, and it can even outline your preferences for end-of-life care and funeral. A trust can fill in where a will can't, ensuring some of the assets you wish to transfer to beneficiaries are not subject to estate tax while keeping the details out of probate court and the public record. While it is much cheaper and easier to create a will, a trust can create added value to the outcome.
Ultimately, your choice between trust vs. will, or both, will be determined by the details of your estate and what you want to achieve with it. There is a best route for you, and it might be in your best interest to seek the advice of a professional, or get started with planning ahead by using a retirement planning app like Everdays. With your free, digital account, Everdays can help you get started with the choices that matter most to you about your end of life planning and final wishes, and we make it easy to give loved ones instant access to your plans so they know what to do when the time comes.
Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.