Will vs. Trust
One of the most common questions I get around estate planning is, “What is the difference between a will and a trust?”
There are a few similarities but a lot of differences, too. These documents are a part of your Estate Plan – to have a complete Estate Plan, there are also powers of attorney for medical and financial purposes plus beneficiary designations on your financial accounts.
Whether a will-based or trust-based estate plan is right for you depends on your specific wishes and the complexity of your estate.
Similarities between a Will-Based Estate Plan and a Trust-Based plan:
Exercising Control: Both a Will and a Trust allow you to control who gets your assets at your death, how those people/entities get your assets, and who is in charge of making financial decisions at your death. The levels of control do vary, with Trusts enabling more control.
Amendments: Both Wills and Revocable Trusts are “set in sand,” meaning you can change them provided you have the mental capacity. Both documents are “set in stone” upon your incapacity or your death.
Differences between a Will-Based Estate Plan and a Trust-Based plan:
Probate Avoidance: A Trust will avoid probate if funded properly. A Will does NOT avoid probate - it merely tells a probate court where the assets go.
Public v. Private: In most states, probate is costly and time-intensive, and most documents are made public records. If done properly, Trusts will be far easier to administer and can be done privately.
Control during your Lifetime: A Trust allows you to control what happens now if you become incapacitated and what happens at your death. A Will only controls what happens at your death.
Cost: One of the biggest knocks against Trusts is that they are supposedly a lot more expensive to set up than Wills. This is no longer the case if done correctly.
Other Questions
Why do I need a Will if I already have a Trust?
When you have a Trust-Based Estate Plan, you also have a Will. If you did not put all of your assets into your Trust, the Will would govern at your death. The beneficiary of your Will is your Trust – this is what is referred to as a “Pour-Over Will” because it pours all of your assets into your Trust at your death. Additionally, in several states, the will is the primary place where you name guardians for your minor children.What if I have named beneficiaries?
If you have named beneficiaries on assets (life insurance or retirement accounts, for example), the beneficiary designation controls! This is why it is important to ensure your beneficiary designation aligns with your Estate Plan.Which one should I do?
In most cases, if you are trying to space out distributions for your beneficiary (think minor children), avoid probate, and want to exercise more control, you should consider a trust-based estate plan. If all of your assets are passing by beneficiary designation and there is no reason to hold things back from your adult beneficiaries, a Will-Based Estate Plan could be sufficient.
Reproduced with permission from EncorEstate
