The terms “will” and “trust” are familiar and everyone has heard about them; however, not everyone understands the difference between the two. Both are documents used for transferring assets, but they serve different purposes.
Although these two terms are often confused, wills and trusts are very different in several crucial ways.
When Each Takes Effect
One of the most significant differences between a will and a trust is the trust takes effect as soon as you create it. A will goes into effect only after the death of the individual who wrote it (the testator).
A will is a document that distinguishes who will receive the testator’s property at his death and it always includes a legal representative to carry out the testator’s wishes. With a trust, however, you can begin distributing wealth before death, at death and afterward.
They Cover Different Properties
A will only govern the disposition of property owned in the testator’s sole name, with interests in property included-for example, tenancy in common. It cannot and does not address assets that pass directly to a beneficiary by operation of law or by contract – such as joint tenancy with survivorship rights, insurance policies, etc.
When it comes to a living trust, it can govern and distribute any property. The person who creates the trust (also known as the grantor) transfers his assets into the trusts after it has been formed. These assets can include life insurance policies and tenancy (in common) interests.
Trusts Provide for Life and Death
A will doesn’t go into effect until the testator dies and does nothing to plan for mental disability because of it. If the testator becomes mentally incapacitated before death, his loved ones have to address the court and ask for a guardian or a conservator to handle his affairs.
You can write provisions of disability into a revocable living trust. It is a common type of trust, and it allows the grantor to act as the trustee during his lifetime, and manage the assets and property funded in the trust. He names someone of his choosing as a successor trustee, and this person takes over when the grantor dies. The successor trustee can either continue to manage the trust or settle it, depending on the terms listed by the grantor in his trust formation documents.
In case the grantor becomes mentally incapacitated, the successor trustee can step in and in this matter, there is no need for a court-appointed guardian or conservator.
Wills Require Probate
Transferring property under the terms of a person’s last will requires probate while passing property and assets under the conditions of a living trust avoids probate.
The terms of a trust are in fact the mechanism by which the assets held by the trust can transfer to the other person. A trust can continue owning the property for the benefit of individual people, such as minor children who are still unable to take ownership of the property they’ve inherited legally.
A will becomes a matter of public records once it’s submitted for probate, while the terms of living trusts remain private.
Wills and trusts each have their benefits and disadvantages. Contact us to get more information so you can decide on the best way of using a will and a trust in your estate plan.