What is the difference between a trust and a will?

On Behalf of | Jun 12, 2024 | Estate Planning

When planning for the future, it is important to understand the difference between a will and a trust.

Both documents play important roles in estate planning, but they serve different purposes and offer distinct benefits.

What is a will?

According to CNBC, 67% of Americans do not have an estate plan. A will is a legal document that outlines a person’s wishes regarding the distribution of their assets after death. It specifies who will receive property and possessions and can also appoint guardians for minor children. A will takes effect only after the person passes away. It goes through a legal process called probate, where a court oversees the distribution of the estate to ensure the assets go to the beneficiaries as outlined in the will.

Wills are relatively simple to create and can be easily modified or revoked during the person’s lifetime. They provide a straightforward way to communicate final wishes and ensure loved ones receive specific assets. However, because a will goes through probate, the process can sometimes be lengthy and expensive. The contents of the will are also public due to the probate process.

What is a trust?

A trust is a legal arrangement where one party, known as the trustee, holds and manages assets on behalf of another party, the beneficiary. Unlike a will, a trust can take effect during a person’s lifetime and continue after death. Trusts come in many forms, but the most common types are revocable living trusts and irrevocable trusts.

A revocable living trust allows the person who creates it, called the grantor, to retain control over the assets during their lifetime. The grantor can change or cancel the trust at any time. Upon the grantor’s death, the trust assets bypass the probate process and go directly to the beneficiaries. This can save time and reduce costs.

The grantor cannot change or cancel an irrevocable trust, once established. This type of trust provides certain tax benefits and asset protection, but the grantor must give up control of the assets.

Everyone should have an estate plan to ensure the proper distribution of their assets after they pass.