Wills vs. Trust

Shawn Plummer

CEO, The Annuity Expert

When deciding which vehicle is best for estate planning, many think the two main choices are a will or a trust. While either can provide peace of mind and protect all your assets, certain advantages and disadvantages of each option must be considered when making this critical decision. This guide will look at the differences between wills and trusts so you can make an informed choice about how you want to plan your estate.

What is a Will?

A will is a legal document that outlines an individual’s wishes to distribute their assets after death. A will typically name an executor responsible for carrying out the instructions outlined in the will and beneficiaries who will receive the deceased person’s assets.

What Is A Will

What is a Trust?

A trust is a legal entity that holds assets for another person or entity to benefit the latter. The trust is governed by the terms outlined in a trust agreement, and a trustee is responsible for managing the assets and ensuring the agreement uses them. Trusts can be used for various purposes, including estate planning, tax reduction, and asset protection.

What Is A Trust

What Are The Four Types of Trusts?

The four main types are living, testamentary, revocable, and irrevocable trusts.

  • A living trust: Living trusts are created and funded during the grantor’s lifetime. It is usually used to manage assets while avoiding probate court proceedings.
  • A Testamentary trust: This is created through the will of a deceased individual. Assets are distributed according to their wishes, often with a federal estate tax exemption.
  • Revocable trusts: Revocable living trusts are created and funded during the grantor’s lifetime. The trust can be changed or revoked if the grantor is still alive.
  • Irrevocable trusts: The grantor cannot change or revoke this once it has been created. This trust helps minimize estate taxes and provides asset protection. It also allows for greater control over how the assets are used after the grantor’s death.

What is The Difference Between a Will and a Trust?

The most significant difference between a will and a trust is how they pass down property. A will passes on the property after you die, while a trust may distribute property during your lifetime and after death.

A will typically name an executor responsible for managing your estate after death and carrying out the instructions you left in the will. On the other hand, a trust is set up while you are still alive and designates a trustee to manage your assets according to your wishes during life or after death.

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Difference Between Trust And Estate

What Are The Benefits of a Trust?

Trusts can benefit the beneficiary and the grantor in many ways. From a financial perspective, trusts offer tax benefits, asset protection, and estate planning. Trusts also provide a way to manage assets while avoiding probate court, which can be costly and time-consuming. Moreover, trusts often ensure that assets are distributed according to the grantor’s wishes.

This is especially important for parents or other individuals who may need to provide for minors, disabled adults, and others who cannot manage their affairs. Trusts can also protect from creditors or financial predators, such as ex-spouses in a divorce settlement.

Finally, trust funds can provide long-term financial security for beneficiaries by preserving assets and allowing them to be managed in a way that best suits their needs.

Trust Vs Will

What Are The Benefits of a Will?

Some of the benefits of creating a will are :

  • A will clearly express your wishes regarding the distribution of assets once you are gone. This helps to eliminate family disputes and confusion over who should receive which assets upon death.
  • A will protects minor children, ensuring that caregivers and guardians are appointed to look after them in case something happens to them.
  • A will helps to minimize potential taxes and estate costs, allowing the maximum amount of assets to pass on to beneficiaries with minimal deductions.
  • A will allows you to designate a trusted person as an executor responsible for carrying out your wishes after death under state laws.
  • A will ensures that your wishes are carried out, ensuring that special items or gifts are given to the right people.

A will provides clear instructions for distributing your assets and property after your death, helps avoid probate court, and ensures your wishes are fulfilled.

Will Vs. Trust Chart

It only takes effect after you die, and must go through probate court before your assets can be distributed.A will is a legal document that outlines your wishes to distribute your assets after your death.
It can take effect during your lifetime, so you can manage your assets while still alive.It only takes effect after you die and must go through probate court before your assets can be distributed.
You can name an executor in your will to manage the distribution of your assets, and you can also name a guardian for any minor children.You can name a trustee to manage the trust and distribute the assets to your beneficiaries according to your wishes.
It can take effect during your lifetime, so you can manage your assets while still alive.A trust can help you avoid probate court, which can be time-consuming and expensive.

Is a Will or a Trust Better?

Wills are often used for more straightforward estate plans, but trusts can be beneficial for more complex situations. For example, trusts may be helpful if you want to provide for a disabled relative or minor child, manage family assets over generations and avoid probate proceedings.

A trust may also help minimize tax liabilities and protect your beneficiaries from creditors if you have significant assets.

Can You Have Both a Will and a Trust?

Yes, you can have both a will and a trust. A will is a document that outlines your wishes to distribute your assets after your death. On the other hand, a trust is a legal entity that holds assets for the benefit of another person or entity.

Having both a will and a trust can provide additional flexibility and protection for your assets and ensure that your wishes are followed after death.

How Does a Beneficiary Get Money Out of a Trust?

There are usually three main methods for distributing assets:

  • Outright distribution of assets. Through the trust, the grantor can ensure that money is distributed to beneficiaries without restrictions. The trustee can also pass on real estate by creating a new deed or selling property with funds transferred to the beneficiary in check, cash, or another form. However, this method offers the simple distribution of assets; there’s protection if someone isn’t making wise financial decisions, which may result in quick depletion of inheritance.
  • Asset distribution over time. The grantor can also stagger trust distributions, meaning the assets are dispersed to beneficiaries at intervals prescribed by their rules. For example, they could administer the trust periodically; for instance, when recipients reach a certain age or marry, or through regular monthly payments.
  • Asset distribution at the trustee. To conclude, the grantor can designate to the trustee which assets are accessible from the trust and when. For example, a discretionary trust may be established if the person receiving benefits is young or incapable of managing funds responsibly. Examples could include special needs trusts or spendthrift trusts for these particular cases.
Wills Vs. Trust

What is a Successor Trustee?

A successor trustee is an individual or institution designated in a trust agreement to take over the responsibilities of the current trustee if they are unable or unwilling to continue serving in that capacity.

The successor trustee is responsible for managing the trust’s assets and carrying out its provisions as outlined in the trust agreement. The successor trustee steps in to manage the trust if the original trustee resigns, dies, becomes incapacitated, or is otherwise unable to fulfill their duties.

What is Probate Court?

A probate court is a court of law that deals with the administration and distribution of the estate of a deceased person, known as the decedent. Probate courts oversee the probate legal process, which includes settling disputes among heirs or creditors, appraising the deceased property, determining if any debts or taxes are to be paid on behalf of the estate, and distributing assets to rightful beneficiaries.

Probate courts also oversee the appointment of executors or administrators of estates and guardians for minors and conservators for those who cannot manage their affairs. The probate court is responsible for ensuring that the decedent’s last wishes are carried out in an efficient and legally compliant manner.

What Does an Estate Planning Attorney do?

An Estate Planning Attorney is trained in passing on your assets, allowing them to reach their desired beneficiaries without costly court battles or hefty taxes. They can draft legal documents that carefully define and plan for this transition, ensuring you can rest easy knowing all will be taken care of after your passing.

Here are some things an estate attorney can help you do:

  • First, draft a last will that ensures it won’t be contested after you are gone.
  • Assist you in setting up a trust.
  • Secure your assets in a trust and manage the trust administration with precision.
  • Ensure your children’s well-being by appointing guardians for them.
  • Receive personalized tax plans, and wealth transfers guidance to optimize your financial success.
  • Create a strategy for making meaningful contributions to charity and impacting your community.
  • Anticipate unforeseen circumstances, such as the passing of your beneficiary, while planning.
  • Document your wishes for the end of life by crafting a comprehensive living will.
  • Give someone the authority to make long-term financial or healthcare decisions on your behalf with a Durable Power of Attorney.
  • Answer questions you have about estate planning and local laws.

Next Steps

Regarding estate planning, a will and a trust can be powerful tools for protecting your loved ones and assets. Factors such as how you want your beneficiaries to receive their inheritance, whether privacy is important to you, and the cost of creating an estate plan should all be considered when selecting which option makes sense for your family. Of course, everyone’s situation is different, so the best way to ensure you make the right choice for your estate is to contact a financial advisor who can explain each option in detail. To create an estate plan that works best with your goals and needs, request a free quote from a qualified professional today.

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Frequently Asked Questions

Why is trust better than a will?

A trust avoids probate, provides privacy, allows for asset management during life, and can provide tax benefits.

What are the pros and cons of a will versus a trust?

Wills are simple, inexpensive, and easy to change but require probate and are public. Trusts are more complex and cost more, but they avoid probate and provide privacy and asset management.

What are the disadvantages of putting your house in a trust?

Putting a house in a trust can be complex and costly and may result in losing control.

What is one disadvantage of a will over a trust?

A Will requires probate, which can be costly and time-consuming.

What are the disadvantages of a living trust?

Living trusts can be complex and costly, resulting in losing control over assets.

What is the primary purpose of the trust?

Protection of assets.

What are the four types of trust?

Revocable, Irrevocable, Testamentary, and Inter Vivos.

What comes first, will or trust?

Typically, a will is executed before creating a trust.

Why use a trust instead of an LLC?

Trusts offer more excellent asset protection, estate and tax planning flexibility, and greater privacy than LLCs.

What is the difference between will and trust?

A “Will” is a legal document outlining how a person’s assets will be distributed after death. “Trust” is a legal arrangement where a person (the grantor) gives control of assets to another person (the trustee) for the benefit of a third party (the beneficiary).

How does the beneficiary get money out of trust?

The beneficiary receives money from the trust through distributions made by the trustee based on the terms outlined in the trust agreement.

What assets should not be in a trust?

Assets with no clear title, liabilities, or items challenging to value should not be put in a trust.

What are the pros and cons of wills and trusts?

Wills are easier to create, less expensive, and more flexible, but they need to go through probate and become public records. On the other hand, trusts are more complicated and expensive to set up, but they don’t require probate and offer privacy and asset management.

*Disclosure: Some of the links in this guide may be affiliate links. I may receive a commission at no cost if you purchase a policy. It helps us keep the lights on!

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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