Wills & Trusts – What’s the Difference?
Wills & Trusts 101
Estate planning – doing it, even thinking about it – can be overwhelming. There is a lot of heavy terminology, and many resource websites assume that you have a baseline knowledge of estate planning vocabulary when giving their advice, which can leave you confused, frustrated, and reluctant to continue your research.
Here at Margerie Law, I often work with young families who are new to the estate planning process, so I understand the value of a little education at the beginning to make the whole process easier for everyone.
One of the most common questions I get is “what is the difference between a will and a trust?” This question is often followed by “which is better for me and my family?” Read on for more information on wills vs. trusts.
A will is a signed and witnessed record, often only 2 or 3 pages, of your wishes for what should happen upon your death. While a will can (and should) be updated throughout your lifetime, the provisions in it only go into effect once you pass away.
Most wills:
- Name person responsible for ensuring your will is executed according to your wishes (the executor)
- Outline distribution of assets not already designated to a certain beneficiary (like life insurance)
- If you have children under 18, name who will act as guardian should you pass away
A trust is a signed and witnessed record similar to a will in that it lays out your wishes for your estate, but different in that it is effective during your lifetime (why trusts are sometimes referred to as “living trusts”). Like a will, a trust is able to be updated throughout your life and outline your wishes for what should happen if you become disabled and when you pass away.
Most trusts:
- Denote how your assets should be managed if you become disabled or distributed upon your death
- Appoints a successor in the role of trustee should you die or become disabled
- May outline guardians for young children should you become disabled as well as if you pass away
- Can detail tax planning protections for beneficiaries
Is it better to make a will or a trust?
While the answer to this question largely depends on your unique circumstances, most people ultimately reap more benefits from creating a trust, either instead of or in addition to a will.
The benefit of a trust is that it can help your family and beneficiaries to avoid the probate process after your death. Probate, which means “to prove,” is when a person’s will is sent through an often lengthy court process to authenticate, pay off debts, distribute assets, and address any disputes. The probate process can be costly, as your family will need to pay for legal support, and can put off the distribution of property for weeks, months, even years.
Another potential downside of probate is that it is a matter of public record. So, the details of the execution of the will (and distribution of assets) are available to anyone who is interested.
I will be honest: it costs less at the beginning to create a will than to create a trust. This is largely due to the fact that wills are often short, relatively simple documents, while trusts can be lengthy and detailed. In the long run, though, a will costs more to your beneficiaries in legal fees associated with the probate process.
Another thing I like about trusts is that it allows you to be more flexible with how your assets are distributed and to ensure they align with your wishes. In a trust, you can detail that a certain amount of money goes toward college education costs, for example. Or, if you are concerned about the age of your beneficiaries, that it is only paid out upon a certain birthday or in increments.
Ultimately, what is best for you and your family when it comes to estate planning is not necessarily what is best for everyone. Here at Margerie Law, I pride myself in helping individuals and families find the best solutions for their futures. Give me a call to get started on your estate plan today.
