The National Center for Health Statistics reports that the life expectancy for US adults is roughly 78 years old. That means that American seniors will have plenty of time to create the estate plans that will take care of them until the end of their days.
There are two estate planning tools used called a will and a trust. You might think a will and a trust mean the same thing. The truth is, these planning tools serve a completely different purpose.
You can find out more here on the difference between a will and a trust. Study these helpful tips so that you have the information you need to make sure that your assets are distributed consistently with your final wishes.
Will vs. Trust: What’s the Difference?
Wills and trusts are two different estate planning tools. Each one can help you protect your property and disperse it to your beneficiaries or another interested party.
What Is a Will?
A will is a written document that outlines how you want to disperse your property once you die. The US Estate and Gift Tax Law allows you to distribute your holdings to a surviving spouse without incurring any estate or gift taxes.
These details should also spell out how and when you want your assets dispersed to other beneficiaries. These other beneficiaries can include your parents and siblings.
A will can also include specific directions for donating to charities or caring for minor children.
You can use your will to identify the guardian you want to assume care of a small child in case you die before they turn 18 years old and become an adult.
What Is a Trust?
Trusts outline a plan that allows third parties to manage any assets on the beneficiary’s behalf. Trusts are referred to as a “living” entity because it means managing someone’s holdings while they are alive.
Use a living trust to identify where your property should go and when you want your beneficiaries to receive them.
A living trust can also manage your assets in the event you become disabled or injured. A successor trustee can manage your holdings for you in case you can’t manage them yourself any longer.
Revocable/ Irrevocable Trusts
A living trust is classified as either a revocable or irrevocable trust. Revocable trusts allow you to cancel or revise its instructions at any point in your adult life.
Assets you should include in your revocable trust include valued possessions like bank accounts, investments, and any real estate your currently own.
A revocable trust is a common estate planning tool. A revocable trust gives grantors more control over their holdings.
If a grantor undergoes a significant financial change, like selling off any investment holdings included in their trust, they can apply the update to their trust themselves.
An irrevocable trust means that those grantors agree to hand over their rights to cancel or revise the trust once it’s been developed.
Only a grantor’s heir can make changes to the trust once it’s created. An irrevocable trust allows you to hand over ownership of the trust and no longer control the property that’s listed within the trust.
Irrevocable trusts are unique because they can help grantors lower their asset values when they transfer their property. Grantors use this strategy to apply for an income-restricted program like Medicaid. Lowering these asset values also helps sidestep paying high estate taxes.
Difference Between a Will and a Trust
Both wills and trusts summarize your instructions on how you want your assets dispersed after you die. However, these two estate planning tools have different characteristics that could impact any estate planning goals.
Consider the elements outlined below to see which planning tool is better for you. These different characteristics include:
Executors or Personal Representatives
Probate law requires a will to identify an administrator. Administrators are called “executors” or “personal representatives.” An executor is assigned to make sure someone’s holdings are dispersed consistently with the will’s stated instructions.
An executor can also manage paying off any outstanding bills or other debt that’s due to a creditor.
Probate laws usually won’t require executors to be a financial expert or estate planning lawyer. They must prove, however, that they’ve conducted their responsibility fairly and to their best ability.
Probate law describes these executors’ responsibilities as a “fiduciary duty.” Someone who has fiduciary duties must act in “good faith” when they manage a will.
A judge appoints an executor who then oversees distributing its assets. Executors distribute these holdings consistent with the final instructions contained within the will. Executors can perform this function without the court’s approval.
Trust funds also have administrators who manage a trust’s holdings. Trust administrators also have a fiduciary duty to conduct their duties in good faith.
A trust doesn’t need a judge to appoint its’ manager to distribute any property when the grantor passes away. Trust managers (or “trustees”) can immediately manage any property or assets identified in the trust. They can also disperse them to the beneficiaries when a grantor passes away.
Public Access to a Will’s Contents
The contents included in a trust are confidential. Only the beneficiaries or executors can review its contents. Once a will is filed with a governmental recorder’s office, it is considered accessible by the public.
A will is subject to a section of law known as probate. Probate laws protect your desires to disperse your assets to your beneficiaries once you die.
Probate court enforces this disbursement. The probate court also monitors whether your outstanding bills are also all paid off. Probate court also makes sure to verify a will’s validity as well as reviews a creditor’s dispute for outstanding payment.
Trusts aren’t subject to the probate or informal probate court process. An estate planning attorney can help you navigate the legal process. Find out more here on how these professionals can plan and protect your legacy.
Will vs Trust: Which One Will Work Better for You?
If you still have questions, call an estate planning attorney who can better explain the difference between a will and a trust. These professionals will help you decide which tool can best serve your interests.
Wills and trusts each have their own individual features that help distribute your assets in ways that benefit the people you love the most.
Check out our website for more resources on end-of-life decisions. We can help safeguard what you’ve spent your lifetime building.