What is the difference betwen a last will and testament and a trust?
Wondering whether you need a will vs. a living trust? Or, more specifically, are you looking for the differences. What’s the difference between a will and a trust?
(*I am an attorney, but I am not your attorney. Nothing in this post constitutes an attorney-client relationship or should be taken as legal advice. The information here is merely for educational and informational purposes. You should always discuss your situation with your own attorney.)
While a living trust and a will serve vastly different estate planning purposes, let’s look at many of the differences.
Wills vs. Trusts
1. A will generally has to go through probate, but a trust does not.
When an estate passes by will and exceeds your state’s minimum probate limits (in Indiana that current limit is $100,000), your estate has to go through probate.
While probate is not a dirty word, it is generally inflexible, expensive, lengthy, and public –not words you generally want to associate with collecting your money.
RELATED POST: Why You Might Want to Avoid Probate
So, most people opt for an estate plan that helps them avoid probate.
Trusts generally avoid probate and allow assets to pass without need for probate or court administration.
2. A will has an executor or personal representative while a trust has a trustee.
Regardless of whether you have a will or a living trust, you must designate a responsible person to be in charge.
Each type of estate planning document has its own designated fiduciary: a power of attorney has an attorney in fact, but a will has a personal representative, and a trust has a trustee.
RELATED POSTS: Important considerations for choosing your personal representative or trustee.
Your personal representative answers to the court and the beneficiaries for his or her decisions. However, your trustee answers to the trust documents and the beneficiaries for his or her decisions –no outside oversight.
3. A trust is typically more expensive than a will.
A will is a much simpler document than a trust and is correspondingly much less expensive. If your goal is to cover your estate planning bases in the most cost effective manner, then you will generally find that a will is less expensive than a trust.
4. A trust is typically less expensive in the long run.
However, while a will is potentially cheaper than a trust in the short term, the long-term expense of administering a trust is generally far less expensive than the administration of a will.
A will that goes through probate has minimum court-administered requirements regardless of the size of the estate. Further, you must meet those minimum requirements regardless of the number of beneficiaries or whether they all agree.
Therefore, in the administration of a will, I often find that the cost of administration through probate is far more expensive than the simple and flexible process of administering a trust.
So, if your concern is short-term cost –get a will. However, in the long run, your beneficiaries may retain a much larger portion of your estate if you form a trust instead.
5. A trust is private, but a will is public
One of the major reasons that many opt to avoid probate is because probate is public. This means that your will, your assets, and ultimately the distribution of your estate is public record.
Anyone with a curious mind can look up the probate estate proceedings, how long it took, and how much money each person received.
Contrastingly, a trust is private unless the beneficiaries want to make it public. This means that terms, the amounts, and the distribution of the trust aren’t shared with the world.
If you value privacy, then your preference would be a trust.
RELATED POSTS: Reasons You Might Want a Trust
6. Trusts come in all shapes and sizes while wills are generally one-size-fits-all
From GRATs, GRUTs, and GRITs to QTIPS and QITs, trusts come in all shapes in sizes. There are different types of trusts for different types of assets and different types of trusts for different classes of beneficiaries.
Wills on the other hand generally all have the same types of provisions. And, while they are all endlessly customizable, they don’t serve specific and exclusive purposes like a trust.
Take a Dynasty trust for example —a trust aimed at the long-term protection of large quantities of assets for multiple generations. The trust has a glut of requirements, but done effectively protects assets from creditors and taxes.
You will find no such corresponding characteristics in wills. A will merely moves assets from the estate to the beneficiary. No fancy tricks or exceptions.
7. If you have a trust, you still need a will, but if you have a will, you don’t necessarily need a trust.
Nearly every estate plan that includes a trust will still include a will. Most still use what we call a “pour-over will”.
RELATED POST: But I have a Trust: What’s a Pour Over will?
If the main tool of your estate plan, on the other hand, is a will, then you likely won’t also have a trust. You don’t need both if you intend to rely only on a will.
An exception to this is that many wills still need a subtrust or minors trust if part of the assets will distribute to children with special needs or minors.
Will and Trust Differences
Wills and Trusts Achieve Many of the Same Goals but have many differences. While a will is effective at transferring the entirety of your estate through probate, a trust has many advantages.
Some of those advantages include the benefit of private administration, long-term cost savings, and flexibility in administration.
However, you will also need to appoint a trustee to handle your affairs and pay a little more up front.