What’s the Difference Between a Will and Trust?
Friday Mar 31st, 2023
How to Distribute Assets Upon Your Death
There are two avenues to distribute your assets upon your death. One is a Last Will and Testament, and the other is a Trust. A Trust is solely a financial document. A Will is also a financial document, but it also addresses various legal issues such as guardianship of your children, if you have kids and you wish to declare who should raise them.
Wills dictate who will be your Executor or Personal Representative (PR.) The Executor or PR will see that your Will gets filed and dealt with through the probate courts. He or she will then see that your creditors get paid and your assets get distributed to your heirs, as per your wishes.
Trusts are generally initially managed by the person who places their assets in the trust. When that person passes away or becomes incapacitated, a Successor Trustee takes over such management. That person manages the assets and makes distributions under whatever the terms of the Trust are.
Both avenues, Wills and Trusts, will accomplish the same goal of distributing your assets to the people you want them to go to.
Benefits of a Will
A Will is both easy to set up, and relatively inexpensive to create. This makes it significantly more straightforward than a Trust to manage on the onset. Management is simple once you have created your Will. The document specifies who will be your Executor or PR. It also informs to whom your assets will be distributed to and under what circumstances once you pass away. Creating a Will is a legal document that protects your wishes upon your death.
Benefits of a Trust
A Trust is harder to set up in the beginning, however your assets never have to go through a probate court later down the road. And if you have property in multiple states, a Trust combines those properties into one document. Trusts are also private documents, not available for viewing in the public domain. Another benefit of a Trust is that your heirs have immediate access to your assets.
Disadvantages of a Will
Although setting up a Will is easier than a Trust on the onset, once the individual passes away, it becomes increasingly a bit more cumbersome because distribution of assets can only occur after going through probate. This can especially become tricky when dealing with property in multiple states, as you will have to go to probate court in each appropriate state in which property is held.
Another disadvantage is Wills are filed with the court upon the person’s death, and thereafter the Will becomes a public document, thus making the Will open to the public. When dealing with issues of privacy, Wills are therefore not ideal compared to Trusts.
Disadvantages of a Trust
Trusts require a lot of legwork and paperwork up front. Retitling bank accounts and changing beneficiaries of IRAs and all other financial holdings must be done to prepare the Trust properly. If you have property, you must re-deed the property into the name of the Trust and then record it with the Clerk and Recorders office of wherever the property is located. All other assets which you may want to include must be transferred into the Trust. The legal term for this work is “Funding the Trust.”
The main thing with a Trust to remember is that if you aren’t willing to actively fund the Trust, then you might as well just have a Will.