Key Differences between a Will and a Trust
Wills and trusts are both important estate planning tools, but they differ in important ways. that can help ensure your assets are protected and bequeathed to your heirs, loved ones, or charities. However, the transfer process becomes much more involved when wealth is passed to a subsequent generation. It is possible to have both a will and a trust. A trust is activated when the grantor signs it. A will does not go into effect until the testator. Upon your death, your will goes through probate, and a trust does not.
What is a Will?
A will is a written document expressing a deceased person's wishes, from naming guardians of minor children to bequeathing objects and cash assets to friends, relatives, or charities. A will becomes active only after one's death. All wills must go through a legal process called probate, where an authorized court administrator examines them. This process can be lengthy and potentially contentious if family members contest the will.
The most common type of will is called a testamentary will.
A will protects survivors against estate tax liability as well. As of 2021, U.S. estate tax returns are required to be filed if your estate is valued at $11.7 million ($11,580,000 for 2020). If your estate is worth less than this figure, there is no tax return required, and you will not be charged an estate tax.
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If you die intestate (without a will), what happens to your property, bank accounts, securities, assets, and even the guardianship of your minor children will be determined based on the intestacy laws in your state. It can lead to long court battles and financial hardship for your loved ones.
What is a Trust
A trust is another method of estate transfer—a fiduciary relationship in which you give another party authority to handle your assets for the benefit of a third party, your beneficiaries. A trust can be created for a variety of functions, and there are many types of trusts. A trust is its own entity. Overall, however, there are two categories:
Living -A trust will require you to transfer property after death to loved ones. It is called a living trust because it is created while the property owner, or trustor, is alive. It is revocable, as it may be changed during the life of the trustor. The trustor maintains ownership of the property held by the trust while the trustor is alive.
and
Testamentary - A trustee will be named in the document to control the assets' distribution following the trustor's wishes, following the trust document and its mandates. This is also an effective way to control the passing of your estate beyond the grave.
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To be valid, a trust must identify the following: the trustor, the trustee, the successor trustee, and the trust beneficiaries.
Key Points
Wills outline who gets what.
Trusts outline who get what, when and how.
Wills have an Executor/Personal Representative.
Trusts have a Trustee ($$).
Wills assign guardians to minor children (the courts decide if a Will is not in place)
Trusts cannot designate a guardian of your minor children.
Wills offer no privacy because they have to go through the probate process causing them to be public record. The judge has to review and approved the will is valid, family members can contest it
Trusts offer privacy and keeps your affairs out of probate. You should try to avoid on the estate-transfer train is probate court. This is where your heirs could spend months sorting out your estate if your transfer plans are not efficiently laid out (this is where you would to consult with a professional). Wills go through probate. A part of probate is allowing time for creditors to make claims against your estate.
Trusts do not go through probate. However, only an Irrevocable trust protects against creditors. Once you establish an irrevocable trust, you no longer legally own the assets you used to fund it and can no longer control how those assets are distributed. With careful planning by your estate planning attorney, you may still be able to indirectly benefit from the assets in the irrevocable trust.
If you would like to get started on your Will for FREE (savings of $400) and speak to an attorney to see if establishing a trust is right for you, sign up with Legal Shield to get assigned to a Law Firm for free consultation bypassing expensive lawyer consulting fees.
* Trusts are established for a additional fee at a discounted rate.
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