Wills and trusts are the two most essential elements of any estate plan. They share one basic trait in common: they both act as documented, legally-binding instructions for what happens after you pass away. Beyond that, they differ in many ways and tend to be used in different sets of circumstances.
So, which of these two documents is right for you? In your overall estate plan, the answer is most likely “both” — but here’s how you can understand the difference and choose one for your particular situation.
Wills and Trusts: The Basic Differences
Wills and trusts can both dictate what happens to your property, assets, and debts after you pass away, but they do this in different ways and with varying legal and financial effects.
They cover different types of property. Wills are more limited in the types of property they can pass on to your beneficiaries: you can only specify property you own in your name alone. With trusts, on the other hand, you can also speak to jointly owned assets or ones that legally pass directly to a beneficiary, like a life insurance policy.
They take effect at different times. Your Will only kicks in after you pass away. A trust typically goes into effect the moment you sign it, and any property you hold in the trust will not necessarily be distributed to beneficiaries upon death.
Some can be changed and some can’t. As long as you have the mental capacity, you can change your Will at any time. A trust can only be modified or cancelled if it is revocable, whereas irrevocable trusts are set in stone from the moment you sign them.
They handle probate differently. One of the biggest differences between these two documents is that any property specified in your Will is still subject to probate. When you create a trust, you technically transfer ownership of property from yourself to the trust itself, which allows it to skip the probate process and its associated costs.
One is public and one is private. Because probate is a public process, Wills go on public record once they take effect. The terms and assets in a trust always stay private.
Which one do you need?
It depends entirely on what you are aiming to achieve with your estate plan. In addition to passing on property, Wills can outline some of your wishes and make sure your family is taken care of. For example, a Will can:
- Name an executor for your estate.
- Appoint a guardian for your children in case you pass away before they come of age.
- Decide who will take care of your pets and how.
- Outline a plan for paying debts and taxes.
There are several types of trusts, which means you can use them for a much wider variety of purposes. They can be used for things like:
- Planning for mental disability or physical incapacity.
- Protecting the proceeds of a life insurance policy, retirement account or 401(k).
- Transferring small business interests.
- Buying and selling securities.
While both documents can transfer valuable property like real estate, trusts are generally a better idea because they skip the probate process and therefore cost your family less money.
There’s a lot more to know about Wills and trusts, so if you’re still not sure which one is right for you, speak to an experienced estate planning attorney for guidance. The lawyers at ElDeiry & ElDeiry, P.A. would be happy to walk you through the decision-making process step by step.
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