Will vs. Trust: Six Differences Between a Will and a Trust
A will is a legal document that distributes any property in your probate estate (all property not in trust, held jointly, or with a designated beneficiary) to the beneficiaries named in your will on your death. The will is revocable and may be amended at any time during your lifetime while you have capacity. The will nominates a personal representative who is the person responsible for managing the legal affairs of your estate. The will can also nominate a guardian and conservator to manage the estates of any beneficiaries who are minors.
A trust (also referred to as an "inter vivos" or "revocable living" trust) is a legal document executed during your lifetime for the purpose of managing assets and transferring assets outside of probate. You are the primary beneficiary of the trust during your lifetime and can amend or revoke the trust while you are alive and have the capacity to do so. Upon your death or incapacity, the trust becomes irrevocable and your nominated successor trustee is then responsible for managing your trust estate based upon the instructions set forth in your trust agreement.
1. Avoiding Probate
A trust avoids the probate process whereas the will does not. A will is only valid if it is probated. The same is not true for a trust. Probate is the court-supervised collection of a decedent's assets, payment of a decedent's bills and estate and transfer taxes, and distribution of a decedent's property to his or her beneficiaries. Probate can be a lengthy process depending on the size and complexity of the estate involved. There can be a months-long delay in getting someone appointed as the personal representative by the courts and the estate must be open for at least six months before it can be closed. There is no delay in appointing a successor trustee for a trust and the trust can be terminated right away as long as this is in accordance with the trust's terms.
2. Flexibility and Control
A trust allows you to retain more flexibility and control over your assets than a will. With a trust, you can make distributions to yourself from the trust while you are alive and then also control the manner in which your beneficiaries receive trust assets upon your death. For example, upon your death you can hold assets in trust for your beneficiaries until they reach a certain age with distributions allowed to them for health, education, maintenance and support needs as determined by your successor trustee. You can even hold assets in trust with certain conditions or incentives to receiving trust distributions (i.e., graduating from college, being employed, or remaining drug free) and protect trust assets from beneficiaries' creditors. In this way, the trust allows you to customize your distribution plan to meet your specific needs as well as the needs of your beneficiaries. With a will, distributions are made outright at the time the will is probated and you cannot further control the gift after it has been made.
3. Planning for Complex Estates
A trust offers certain tax planning benefits that a will does not. For those large estates (estates in excess of the $5 million exemption amount; $5.43 million in 2015 when adjusted for inflation) a trust can offer certain tools to reduce the amount of estate taxes paid.
4. Planning for Incapacity
A trust plans for your incapacity whereas a will does not. The successor trustee of your trust can step in to manage your trust affairs in the event you become incapacitated. The trust can also direct how mental incapacity is determined. With a will, there is no such person appointed to act on your behalf in the event you become incapacitated and a court proceeding may be necessary to appoint a conservator and guardian to act on your behalf. Conservatorship and guardianship proceedings are costly and it can take months to have a conservator and guardian appointed for you by the court.
5. Maintaining Privacy
trust is a private document whereas a will is a public document. In general, a trust is never publicly filed and the only parties entitled to view the trust are the trust beneficiaries. In contrast, a will is filed with the court as part of the probate process and the contents of the will, including the names and addresses of beneficiaries, and also possibly the assets in the estate and their values are included as part of the public court record.
A trust can save your estate from the costs of a probate, conservatorship, and guardianship court proceeding that are all required if you only have a will. Court costs can vary depending on the complexity of the case but can easily end up in the thousands of dollars for even a simple matter.
The benefits of a trust are obvious but there may also be cases where having just a will is appropriate. Keep in mind, however, that without a trust, you might be sacrificing many significant benefits for yourself and your loved ones. Ideally, you should speak with an estate planning attorney that can provide you with further guidance based upon your own unique situation.
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