Estate Planning: What are the differences between a will and a trust?
1. Implementation and Activation
Will: A will only becomes effective after your death and must go through probate, a legal process where a court validates the will and oversees the distribution of assets.
Trust: A trust can be effective during your lifetime (living trust) or after your death. Assets in a trust do not go through probate, allowing for immediate management and distribution according to the terms of the trust.
2. Probate Process
Will: Requires probate, which can be a lengthy and costly court-supervised process. Probate is a public process, meaning the details of your estate and the distribution of your assets become public record.
Trust: Avoids probate, leading to a faster and often less expensive distribution of assets. The process is private, keeping details of the estate and beneficiaries confidential.
3. Control Over Assets
Will: Only controls assets solely in your name at the time of your death. It does not cover assets that pass directly to beneficiaries by other means, such as joint ownership or beneficiary designations.
Trust: Can control and manage assets placed in the trust during your lifetime and after your death. It provides continuous management of assets, even if you become incapacitated.
4. Incapacity Planning
Will: Does not provide for the management of your assets if you become incapacitated. Separate legal documents, such as a durable power of attorney, are needed for this purpose.
Trust: Includes provisions for managing your assets if you become incapacitated. The successor trustee can step in and manage the trust assets according to your instructions.
5. Distribution Flexibility
Will: Generally provides for a one-time distribution of assets after your death. While it can include provisions for minor children or specific bequests, it does not offer the same level of flexibility as a trust.
Trust: Allows for detailed and flexible distribution plans. You can specify conditions for distributions, such as age or milestones, and provide for ongoing management of assets for beneficiaries.
6. Modification and Revocation
Will: Can be modified or revoked at any time during your lifetime, as long as you are mentally competent. Changes must be made through formal amendments (codicils) or by creating a new will.
Trust: Living trusts can be modified or revoked during your lifetime if they are revocable trusts. Irrevocable trusts generally cannot be changed or revoked once established.
7. Tax Planning
Will: Provides limited opportunities for tax planning. It can include provisions for trusts to be created upon your death, but these are not as flexible or advantageous as living trusts.
Trust: Can offer significant tax planning advantages, especially irrevocable trusts. Trusts can help reduce estate taxes, provide for charitable giving, and offer other tax benefits.
8. Costs and Complexity
Will: Generally less expensive and simpler to create initially. However, probate and potential legal fees after death can increase the overall cost.
Trust: More expensive and complex to set up initially, but can save money and time by avoiding probate. Ongoing management fees may apply, depending on the type of trust.
9. Privacy
Will: Becomes a public record through the probate process, meaning anyone can access the details of your estate and the distribution of your assets.
Trust: Remains private, with only the trustee and beneficiaries having access to the details. This ensures confidentiality and protects the privacy of your estate.
10. Scope of Application
Will: Primarily used to distribute assets and name guardians for minor children. It can also include instructions for funeral arrangements and other final wishes.
Trust: Used to manage and distribute assets, plan for incapacity, reduce taxes, and protect assets from creditors. Trusts can be tailored for various purposes, such as special needs trusts, charitable trusts, and spendthrift trusts.
