What Is the Difference Between a Will and a Trust?
Wills and trusts are the basic building blocks of estate planning. Both wills and trusts can be used by people to arrange for their assets to pass to others after death. Although they are both used for estate planning, they are very different documents. Wills and trusts are created and operate in distinctly different ways. Whether you need a will, a trust, or both will depend on your individual circumstances and wishes.
Wills: A will is a document that allows you to name guardians for minor children, designate where (to whom) your assets will go, and specify final arrangements (e.g. burial or cremation). When you create a will you name a person (typically a relative, friend, or a professional fiduciary) to carry out the terms of your will. This person is called the executor. It will be the executor who will make sure your will is probated and your assets are distributed according to your will.
Your will does not go into effect until after your death. This means that people you leave money and property to in your will do not have any legal right to that property until the will is probated. After death, the executor will need to file the will with the probate court and carry out their duties under the supervision of the court. The executor’s job is to see that the property is distributed according to the terms of the will, to pay the estate’s debts, and close the estate.
The possibility of probate is one of the greatest disadvantages of a will. In California, any estate that is worth more than $184,500 must be probated whether or not there is a valid will. This probate process can be both expensive and time consuming. Having a valid will makes probate easier for the court and executor but probating a will means it will take longer to make distributions to heirs and beneficiaries. The cost of probate will also leave less money in the estate to pass on to your intended beneficiaries.
Trusts: A trust is a document that goes into effect as soon as it is created. However, just like a will, the beneficiary does not have a right to any property in the trust. There are many different types of trusts but the most common trust used in estate planning is a revocable living trust.
The creator of the trust (also called the “settlor” or “trustor”) creates the trust and funds it by placing property into the trust. You can place any kind of property into a trust. Examples include bank accounts, jewelry, stocks, art, real estate, life insurance proceeds, and investment accounts. Funding the trust means that the property is retitled to the name of the trust. In other words, the trust becomes the owner of the property. As the settlor of a revocable living trust you would typically serve as the trustee of the trust assets during your lifetime. As the settlor of a revocable living trust you maintain complete control over the property in the trust. You have the freedom to sell trust property and to move property into and out of the trust as you see fit. When you die or become incapacitated, the person you named as your successor trustee takes over the management of the trust according to the terms you have laid out in your trust.
Many married couples opt to have a joint (family) trust where they are each settlors and act as co-trustees until their deaths. When the first spouse dies, the surviving spouse becomes the sole trustee over the trust and the assets placed in the trust. When the survivor dies (or becomes incapacitated) the successor trustee takes over. The terms of the trust dictate how the property in the trust is to be held or distributed to the beneficiaries.
A trust is a private instrument that does not need to be probated after death. This means property can be more quickly distributed to your beneficiaries. without the time and expense of probate. Trusts can be complex and are usually more expensive to create than a will. However, the additional expense of a trust can easily be recouped by the avoidance of probate.
A good estate plan may involve a will, or both a will and a trust. It depends on your individual circumstances and desires about how you want your assets distributed.
