What’s better, a trust or a will? The answer might not be as simple as you think. For some people, a trust works better than a will and, for others, vice versa. There are no absolute rights or wrongs here. There are no definitive choices. So a better question would be: In your situation, which one of these would suit you better?
For that, it’s essential that we must first consider what a will and a trust are and how they contrast with each other. We might say a will is a will and a trust is a trust or a will is not a trust and a trust is not a will, but that would be too simplistic, and confusing, for our purposes. So let’s delve and examine how they are defined and the dissimilarities between the two.
A ‘will’, or a ‘will and testament’, can be simply defined as a legal declaration of your views and commands of how the property must be distributed after your demise. You can name the executor of the will and the guardian of your children or property in the will itself. Also, you can grant specific assets to specific heirs.
A ‘living trust’, or an ‘inter vivos trust’, on the other hand, is an agreement whereby the owners of property (grantors) can assign the legal possession of their assets and property to other persons (trustees) to hold for the benefit of those who receive that property (beneficiaries). It is called a living trust since it is created by the grantors themselves while they are alive. This is significantly different than other kinds of trusts that are created after death.
The major difference between a will and a trust is what is known as the probate. What does it mean? A probate may be defined as a legal process wherein the will is reviewed to determine whether or not it is authentic and valid. If you have any remaining debts or taxes, they are paid before the beneficiaries can inherit the assets. The fees you owe to the court, your attorneys, and the executors are also deduced from your assets before the will is carried out. All in all, the probate takes quite a bit of time between the death and the distribution of assets according to the will. A trust, on the other hand, doesn’t require any such process.
Another key difference is that although you can create both wills and trusts within your lifetime, but a will comes into force after death while a trust can function while you live. You can move any and all assets within the trust and the beneficiaries can receive these assets immediately or according to your instructions. You can create a trust for your own benefit. You can even name yourself the trustee until death after which it passes on to a successor trustee.
This is the big question. Should you create a will or a trust? We mentioned earlier that there is no absouletly correct choice. Whether you go for a will or a trust depends upon certain factors. While opting for one, you must focus on the following considerations.
This is one concern that is usually the deciding factor. Since the probate is a costly, and complicated process which may take months, most people want to avoid it altogether in order to carry out the inheritance as soon as possible. And since you can avoid probate through a trust, it might ultimately be the preferable option. However, don’t jump to conclusions just yet. Just because wills can have probate doesn’t necessarily mean that they would. How so? That depends on the next considerations.
Avoiding or simplifying probate can be easy depending on the scope of your assets. If your assets range below a certain threshold, you can choose to opt for an informal probate. This is the process wherein your assets are transferred with minimal court supervision. You just need to fill out the form. However, whether informal probate applies on you can be a little tricky. The threshold varies from state to state and there can be other legal considerations. So it’s better to contact your attorney on this. If you can opt for an informal probate, there is no apparent reason to create a trust. The will might suit you better.
Whether you opt for a will or a trust also depends on the type of property you own. If you do not have a vast, diverse estate and your assets only consist of bank and retirement accounts, you can avoid probate without resorting to the creation of a trust. Fill out some simple forms, like Transfer on Death (TOD) or Pay on Death (POD), and a simple will would suffice. However, if you own real estate or other property that you wish to transfer out of probate, creating a trust would be the way to go. Trusts also work better for people with large estates.
Both wills and trusts are complicated in their own ways. However, the difference is that wills are back-loaded while trusts are front-loaded. In simpler terms, creating a will is easy. You just write and sign on a piece of paper and it’s done. The complexities lie in the enforcement of the will. So if you’re not the one to dwell in forms and formalities and think that the beneficiaries are more than capable to carry out these activities after your death, you may choose to write a will. On the other hand, creating a trust is significantly more complicated but it would save your family from going through all the trouble after you are gone.
Another key difference between a will and a trust concerns privacy. A will may be created privately but, after filing, can become a part of the public record, accessible to anyone. A trust, however, is private and remains so even after you’re gone. Although some financial institutions may demand to see the trust agreement before carrying out the terms, it is not accessible to the general public in any way.