Wills and trusts are two very different kinds of documents used in estate planning. Everyone needs a will, but not everyone needs a trust. Knowing the difference will help you to understand what you need.
What is a Will?
A will is the cornerstone of an estate plan. It’s the legal document by which an individual instructs how property should be distributed among heirs, as explained by WMUR in “Money Matters: Wills vs. Trusts.” A will must be processed through the probate court system, which is how your affairs will be concluded after all debts have been paid. Your will includes the name of your executor. That’s the person who is in charge of making sure that your wishes, as expressed in the will, are fulfilled.
What is a Trust?
On the other hand, a trust is a legal document and the grantor is the person who creates the trust. The grantor decides what assets are going to be included, selects the trustee and chooses beneficiaries. The trustee manages the property in the trust and protects the assets for the beneficiary. The trustee distributes assets according to the trust’s provisions.
The grantor can be the trustee, and if it’s you, you need to name a successor trustee, in case you are unable to function as trustee. The beneficiary can be you during your lifetime and then your spouse, children, or friends at your death. The trust also directs when and how the assets are to be distributed to the beneficiaries.
For a trust to function properly, you’ll need to transfer the title of assets to the trust. For example, your brokerage account can be transferred into a trust account, and IRAs and 401(k) s can name the trust as the beneficiary.
Trust vs Will: Some significant differences between them
- Will are public records, but trusts are usually private;
- You must transfer assets to your trust for it to work, while you’re alive. This is not the case with a will;
- A trust can manage assets while you’re incapacitated, but a will only works at your death;
- With property in more than one state, you might be able to avoid probate in each state by placing all of the property in a trust; and
- You can designate a guardian for your minor children or dependents in a will, but not a trust.
Depending on the complexity of your estate, including its size, you may find that you need a will and a trust, or several different types of trusts. An estate planning attorney will be able to help you identify what, if any, trusts, are needed to protect your family.