Many people who are unfamiliar with estate planning know that there is a difference between a will and a trust, but they aren’t sure what that difference is or how it applies to their estate. This post will provide a brief explanation both of wills and trusts, as well as some potential benefits and draw backs to each.
A will is what comes to mind when most people think about estate planning. The “last will and testament” is how people have been handing down their estates for centuries, and it is essentially a legal document that directs how assets in an estate should be distributed upon death.
Wills are easy to create and dissolve. In fact, dissolving a will can be as easy as ripping it up.
When the creator of a will dies, his or her estate must go through probate. Probate is the public court process that determines the validity of a will before the distribution of the decedent’s property can take place.
A trust, on the other hand, is a compilation of assets that are held for the benefit of a third party. The trust can include cash, investments and real property, and it is managed by an appointed trustee. Trusts can be created in a variety of ways and can be either revocable or irrevocable.
One of the biggest benefits to executing a trust is that they allow the estate to avoid probate. Because a trust avoids probate, it also keeps the process largely confidential. A trust can also help the estate to avoid certain taxes, which is especially beneficial when large estates are involved.
However, one of the drawbacks to creating a trust is that it can be expensive. That’s one of the main reasons many people choose to leave a simple will rather than a trust. Additionally, many people do not have enough assets to justify the complexity that comes along with creating a trust.
As you can see, there are major differences between wills and trusts. The only sure way to know which one is right for your estate plan is by speaking with an experienced estate planning lawyer in your area.
Source: Forbes, “Wills vs. Trusts: What’s Best For Retirees?” Thomas and Robert Fross, Feb. 18, 2014