Wills vs Trusts
Advantages of a Will
Disadvantages of a Will
Advantages of a Trust
Disadvantages of a Trust
So what is the difference?
The easiest way to describe the difference between a will and a trust is that a will only answers the question of Who? and What? A will directs the court regarding what property is given to which beneficiary. A trust on the other hand does both of those things and can adds the extra dimension of How?
Probate is the process the court uses to distribute an estate according to a will. The purpose of this proceeding is to figure out what property makes up the estate, and then the court gives that property to the appropriate beneficiaries. That is it. At the conclusion of probate each beneficiary is then the owner of the property that was left to them, no strings attached.
With a trust Probate is not used. A trust is an agreement between the Trustor (the person creating the trust) and the Trustee (the person in charge of carrying out the purpose of the trust) and this agreement is done to help the trust's beneficiaries. Is one of your beneficiaries bad with money? A trust can allow you to provide for them on an ongoing basis whereas a will would simply grant them a lump sum at the conclusion of probate. Do you want to make sure that your beneficiaries don't run up huge debts and then have your property liable to creditors? Some aspects of a spendthrift provision in a trust can allow you to protect the funds you give from creditors. Finally if you don't want anyone to inherit unless they can demonstrate that they can handle the money, a trust can provide for distribution at a time you wish and according to the criterion that you establish.
When should I just use a will?
Generally a will is a perfectly good solution if your future is uncertain. Trusts are cumbersome to make alterations to. Whereas if your situation is liable to change then you simply make a new will and that's it. A will is also a good idea if you don't need the control that a trust provides. If you just want to simply distributed equal shares of your estate to your adult children you may not care how it is accomplished so the extra control may not be necessary. Finally privacy is the last thing that concerns many people. It is anyone's business who gets what part of your estate? Not really, but during probate your will becomes a public document which is searchable by anyone, at any time, for any reason.
When is a Trust necessary?
A trust is necessary if 3 things are a concern for you:
If privacy is an issue for you, the only way to avoid probate is by using a trust. Furthermore the trust must be done correctly because if property is left outside of the trust then you may end up in probate anyway and even in that case your distributions likely will still remain private.
There are many instances where additional control is necessary. Some examples are:
Finally tax advantages are one of the main uses for large estates. If your estate is likely to be over 5 million dollars (10 million if you are married) then using irrevocable trusts to lower the total value of your estate can be incredibly helpful in avoiding the high cost of estate taxes.
If you would like more information on trusts then click here for a deeper dive into what can be accomplished with a trust.