Wills, trusts, estate planning—all of these terms are used when discussing planning for the future of your assets and dependents. Some people think these terms are interchangeable, but they aren’t.
Many estate planning options are available to you, and it can be confusing trying to decide which one to choose. There are both slight and significant differences between wills and trusts. Let’s look at the differences between wills and trusts and how to choose the one that works best for you.
Wills and Trusts: Similarities and Differences
Wills and trusts do overlap, but there are also key differences between them. Both documents let you declare who gets your things in the event of your death. They do it differently, and each document has its advantages and disadvantages.
One of the most significant differences between a will and a trust is how and when they take effect. Wills don’t take effect until you are no longer living. Trusts, however, are effective as soon as you sign and fund them.
Think of a will as a simple estate planning document. They allow you to decide who takes care of your children and pets, who gets your assets, and specify your final arrangements.
When you create a trust, you must transfer assets to fund it, which makes the trust the owner of those assets. The transferal of assets makes setting up a trust more complicated than setting up a will. However, trusts do have a significant advantage over wills. Often, they can minimize or avoid the probate process.
Which Is Better, A Will or A Trust?
Wills and trusts have different, specific benefits, so one isn’t necessarily better than the other. The key is to realistically look at your situation, goals, and needs when you begin the process. That is how you will determine which is the best for protecting your family.
Can You Have Both a Will and a Living Trust?
You can have both a will and a living trust, as the two documents do different things. A will lets you name the guardians for your children, state your final wishes for your property and other assets, and name an executor for your estate. Trusts manage and distribute assets while you’re alive and after you die. So, it’s better to know what kind of will to combine with a living trust to get the best protection for your family.
Having a last will and a living trust together is not necessarily the best idea. If you have assets that are only in your last will, they will likely be part of an extensive probate process. Last wills are public documents. Assets in a trust are generally protected from probate court.
Most revocable living trusts also include what is known as a pour over will. This type of will is made to work with your trust. Pour over wills are basically a type of backup plan that ensures everything goes under the trust you have established. In the case of a pour over will, anything you own outside of the trust, and anything included in the last will, will be paid into your trust when you pass away.
Is Probate Required for Wills?
Creating a will doesn’t necessarily mean your loved ones won’t have to deal with probate. Probate is a court-supervised process that occurs after you pass away if you don’t have a comprehensive estate plan in place. The process can be time-consuming and costly.
You can simplify or eliminate the probate process in a variety of ways. One way is to create a trust when you do your estate planning. Anything within the trust can be passed to your heirs without going through probate. Having a trust keeps asset distribution a private matter, while asset distribution through wills and probate is public.
When Do Wills and Trusts Go into Effect?
Trusts go into effect basically as soon as they are signed and funded. A will, however, doesn’t go into effect until you die.
- Death and the Will
A last will and testament goes into effect at the moment of death. When that happens, someone notifies the court to start the process of probate. The probate process can be expensive and time-consuming.
Basically, a will is useless as long as you are alive. If you were to become incapacitated before death, your will does nothing to make decisions for you. So, a will is not effective for estate planning on its own.
- Life, Death, and Trusts
Trusts can simplify the process for your loved ones because they take effect as soon as you sign. Trusts don’t just plan for your death; they are also designed to affect your life. A trust provides for instances when you can’t make decisions for yourself, such as becoming mentally incapacitated or physically disabled. It also keeps your loved ones from having to make unthinkable decisions.
The most important aspect of a trust is it can make your wishes known while you’re still alive as well as after you’ve passed away. There is no wondering what you would have wanted. A trust takes some of the burden off the people who survive you.
Planning for the future is important for many reasons. The process can seem overwhelming, and many of us think we have plenty of time to plan. However, none of us know what the future holds, so it’s important to have a plan in place that will take the burden away from our loved ones if the unthinkable happens.