Both are useful estate planning tools that serve different purposes, and they can work together to create a complete estate plan.
Will vs Trust: When They Go Into Effect
One main difference between a will and a trust is that a will goes into effect only after you die, while a trust takes effect as soon as you create it.
A will is a document that directs who receives your property at your death, and it appoints a legal representative to carry out your wishes.
By contrast, a trust can be used to begin distributing property before death, at death, or afterward. A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a trustee, holds legal title to property for another person, called a beneficiary.
A trust usually has two types of beneficiaries — one set that receives income from the trust during their lives and another set that receives whatever is left over after the first set of beneficiaries dies.
A will covers any property that is only in your name when you die. It does not cover property held in joint tenancy or in a trust. A trust, on the other hand, covers only property that has been transferred to the trust. For property to be included in a trust, it must be put in the name of the trust.
The Role of Probate
Another difference between a will and a trust is that a will passes through probate. That means a court oversees the administration of the will and ensures the will is valid, and the deceased person's property then gets distributed the way the deceased wanted.
A trust passes outside of probate. So, a court does not need to oversee the process, which can save time and money. Unlike a will, which becomes part of the public record, a trust can remain private.
Wills and trusts each have their advantages and disadvantages. For example, a will allows you to name a guardian for children and to specify funeral arrangements, while a trust does not.
On the other hand, a trust can be used to plan for disability or provide tax savings.
Do I Need a Will or Trust?
It depends. If you want to avoid probate, which can save time and money for your heirs, a trust is something you should investigate. For instance, you may have jointly owned property that is not covered by a will. If you want that property to pass outside of probate, you might consider placing it in a trust. Certain trusts also offer tax advantages.
Every person's situation is unique. Be sure to consult with a qualified estate planning attorney near you to determine how best to use a will or trust in your estate plan.