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The Difference Between Wills and Trusts

by Jan Miller
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Planning for the distribution of your assets after death can be a valuable gift to your loved ones and it can give you much-needed peace of mind. But, should you use a will or a trust as your primary estate planning document? Which is best? As you evaluate your options, it can help to understand the benefits and potential drawbacks of each approach.

 

Related Blog:  The Role of a Fiduciary Advisor

 

The Difference Between Wills and Trusts

To most people, the two terms are interchangeable. But, there are big differences between trusts and wills and it benefits you to know them to help you make a decision for your future.

Wills

Most people are familiar with the concept of a last will and testament. A will is a legal document that allows you to direct who will receive your assets when you die. Wills appoint a legal representative (called an “executor” or “personal representative”) to be responsible for administering your estate and carrying out your wishes. A will is also the document that allows parents of minor children to designate someone to serve as guardian for their children, in the event the parents die prematurely.

 

Wills offer some flexibility and they don’t go into effect until after death. So, someone creating a will retains the power to amend or revoke it at any time prior to death.

 

However, one potential drawback is that a will does not control all of your assets. Instead, it only covers assets held in your name alone at the time of your death, without joint owners or beneficiaries, and does not control assets held in trust. If you choose to use a will as your primary estate planning tool, it will be important to ensure that all of the other pieces of your estate are doing exactly what you want them to do.

 

It’s also important to know that wills may also need to be administered through probate court proceedings and are subject to being challenged when you die. This can add a layer of complexity and expense to the estate administration process.

Trusts

When you create a trust, you are entering into a legal agreement giving a “trustee” the authority to hold legal title to your assets for the benefit of one or more beneficiaries.

 

Trusts are effective as soon as they are created, which can provide seamless management during periods of lifetime incapacity and after your death.

 

Another benefit of using a trust is that, when it’s created and funded properly, your estate may not need to deal with the expense, publicity, and inconvenience that can come with a probate court proceeding.

 

Trusts come with a significant amount of flexibility. However, it’s important to understand that they require more upfront effort and active management than a will. Because of that, they are more expensive to create.

 

Is a Trust or Will Better For You?

The decision to use either a will or a trust is not always clear-cut. They can both accomplish similar objectives, although trusts can provide some added benefits that wills don’t offer — at a cost. Please note, however, that even if you have a trust, you will still need a Will.

It can help to evaluate your goals for your assets, the types of assets you own, the size of your estate, how state laws could impact trust usage, and when probate court may be required.

 

Consider how important it is to you to be able to actively manage your estate plan, as wills and trusts offer varying degrees of control. For all of their flexibility, trusts are only useful when they’re “funded” appropriately, so when creating a trust, you’ll need to be able to invest additional time and effort upfront.

 

You should also consider your beneficiaries and their abilities to manage an inheritance at this point in their lives. If you are including minor beneficiaries or dependents with special needs, a trust can help provide for ongoing management and distributions for years after your death.

 

When it comes to choosing a will or a trust as your primary tool for your estate plan, there is not a one-size-fits-all solution. The best choice for you will depend on your specific circumstances and goals.

 

The professionals at Caldwell Trust Company can help you understand the intricacies of each approach, so you can make an informed decision that makes sense for your situation today — and in the future.

 

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Trusts & Estate Planning