What’s the difference between a will and a trust?
Wills and trusts are both common estate planning tools, and both have been around for centuries, but the differences between the two are substantial. Wills and trusts are both well-established parts of our common law heritage, but the mystery between the two, and the question as to which is most appropriate for a person in a given situation seems to persist. Most people intuitively grasp that wills are written directives to be used to distribute someone’s estate after the person dies, but for many, the concept of what a trust is and how it works is a little less clear. Unless you’ve been to law school, read a book about trusts, or attended an estate planning seminar, you may not understand exactly what a trust is, or what it’s designed to do. Fortunately, the truth about trusts, and the differences between wills and trusts, is actually not that complicated.
In a nutshell, the primary difference between a will and a living trust is that a will is a testamentary document that has no effect until you die, whereas a trust is a living legal entity that you create during your lifetime and that continues to live on after you’re gone. A will doesn’t own anything directly, but a trust, on the other hand, is an entity capable of holding title to your most valuable possessions, including bank accounts, real properties, businesses and other assets. You can hold and manage your assets in your living trust while you’re alive, and when you pass away, your successor trustee can distribute the remaining trust assets to the beneficiaries of the trust according to your instructions. Wills don’t own anything, but trusts do.
What do Wills Require?
A will also typically requires validation and approval by a public probate court, provided one’s estate meets certain requirements, but a living trust can be administered privately by the person you choose as your successor trustee. So, while wills are often less expensive to set up initially, when the testator of the will dies, the expensive public probate process begins, and the cost of a public probate can be much greater than the cost of setting up a living trust, not to mention more time consuming. Living trusts, then, are created to hold assets during the trustor’s lifetime and then to protect those same assets from going through the public probate court after the death of the trustor. A will, on the other hand, is essentially a letter to the public probate judge telling the judge how to distribute your estate when you’re gone.
For some people, a simple will may be enough, but for others, the advantages of a living trust may far outweigh what a simple will can offer. A will, sometimes referred to as a last will and testament, only becomes effective upon death, whereas a trust is effective the moment it is signed, and remains effective after death or even in the event of the incapacitation of the trustor. With a trust, then, if the trustor, (the person who creates the trust), becomes incapacitated, the successor trustee can continue to privately manage the trust assets for the ongoing benefit of the trustor until the trustor recovers. Since a will is only effective upon death, however, it offers no such assistance in the event of incapacitation. The fact that a will doesn’t offer any protection from probate, or that it doesn’t function if a person becomes incapacitated is a rather substantial disadvantage of the will.
What About Probate Courts?
There are a multitude of other differences between trusts and wills. Living trusts, also known as inter vivos trusts or revocable trusts, also boast the valuable attribute of privacy. Whereas a will is a public document that must typically be registered with the probate court so that the court can verify the validity of the will, a living trust is a private document that is administered exclusively by the person you choose as your successor trustee for the benefit of your beneficiaries. There are an abundance of stories about people that left only a will, or no will at all, and upon their death, all of their affairs and the contents of the deceased person’s will are made public. The probate court even requires that public hearings for the probate of a will be published in the local newspaper so that anyone who feels they were owed money or that they have an interest in the estate can attend. Courtrooms can be packed with individuals who think they are owed something from the person that has died, and the court must individually evaluate each one of those claims to determine standing and whether or not that member of the public has a valid claim against the estate. That’s why probate can take so long, and why it is often expensive. The probate court must sift through all claims to separate the valid claims from the invalid claims. A trust is completely different from a will, however, in that it is absolutely private. All matters and assets belonging to trust that are to be passed on to family and loved ones through a trust are maintained in total confidentiality and are rarely, if ever, made public. Bills are paid, tax returns are filed and the assets in a trust are distributed to the beneficiaries named in the trust without any court involvement whatsoever.
Even the way that a will is signed or executed is different from that of a trust. Both wills and trusts can be either handwritten or typed, although documents prepared using word processors or established online programs are generally more comprehensive and are of better quality than holographic or handwritten documents. A handwritten will does not have to be witnessed by anyone, provided the entire document is completely in the handwriting of the person creating the will. However, a typed will has to be witnessed by two or three disinterested individuals. A disinterested witness is someone who is neither an executor nor a beneficiary of the will. A living trust, on the other hand, does not need to be witnessed. A living trust does, however, need to be signed by both the trustor, (creator and maker of the trust), and the trustee, (manager of the trust). For most people, the trustor of the trust is also the trustee and the beneficiary, so the trust document is generally signed at the outset by one person who is filling different roles within the trust.
How Do You Make Changes to a Will or Living Trust?
Changing trusts and wills is equally easy. To make a change to a trust requires an amendment to the trust document. Making a change to a will involves preparing and signing a codicil to the will. A trust amendment must be signed by the trustor and the trustee, and a codicil to the will must be signed by the testator and by two or three disinterested witnesses, unless it is a holographic will, which only needs to be signed by the testator.
Another difference between wills and trusts, is that wills are usually quite simple, and, while trusts can be equally simple, trusts can also be more complex and can provide various structures to suit a given family or situation. A will can only be created by one person. However, a married couple consisting of two people, typically a husband and a wife, can establish one trust together. One married couple can create a family living revocable trust to hold assets for the married couple while they are both alive, pass assets to the surviving spouse upon the death of the first spouse, and then distribute trust assets to the beneficiaries of the trust after the second spouse dies. A special type of will, known as a testamentary trust, could provide some of the same structural advantages, but only after it has been subjected to the public probate court. Some trusts, however are capable of having different stages of development, evolving from the time when both spouses are living, to the time when only one spouse survives, and continuing on until all the remaining assets are distributed to the eventual beneficiaries, which might be children, grandchildren or great-grandchildren. Trusts can be more complicated and multi-generational than simple wills. In cases if blended families, a single family trust created by a husband and wife, may also contain provisions where a portion of the trust assets are funded into an irrevocable support spouse for the ongoing benefit of the surviving spouse upon the death of the first spouse to die. With this type of trust, known as an AB Trust or a QTIP Trust, the surviving spouse may derive certain benefits from the trust during his or her lifetime, however, the surviving spouse may not change the beneficiaries of the first spouse to die. With this type of complex trust the survivor may still change or amend his or her portion of the trust, typically known as the Survivor’s Trust, but if the survivor may not changes the first spouse’s beneficiaries. This type of complex trust is often used by couples of have blended families and want to take care of each other, but also want certain protections built into the trust to protect each spouse’s children from a prior marriage or relationship. This is just one example of how a trust may be more complicated that a will. Most married couples set up very simples trusts so that the assets can pass from one spouse to another, and then finally to the children.
Because living trusts live on long after the death of the creator, trusts are capable of holding assets for the benefit of children, providing them with income and access to principal under certain rules, but also providing that upon the death of the children, the remaining trust assets will pass to the grandchildren at a certain age. Before a child or grandchild reaches a certain age, the trustee of the trust can advance to or for the benefit of the child or grandchild, whatever amounts of income or principal that the trustee thinks would be useful for that child’s or grandchild’s education, health or support. This type of trust wherein the trust holds assets for multiple generations is called a generation skipping trust. Once again, this is something that your basic will just can’t do.
Because trusts can be more versatile and complex documents, it was once thought that they were only created for the wealthy. In fact, that may have been true for previous generations. However, since the advent of the modern computer and word processing technology, these more elaborate and useful estate planning tools called trusts, are available to almost anyone who wants one. It is often said that anyone with assets greater in value than the probate exemption limit in his or her state should have a trust, as opposed to a will. Or, said another way, anyone with a house or real property would probably benefit more from a living trust than a simple will, because the trust will protect the house from going through probate, whereas the last will and testament will not.
So Which One is Better a Will or a Trust?
Wills are public while trusts are private. Wills are usually probated in the public probate court, whereas trusts avoid probate. A living trust will function and allow for ongoing asset management if the trustor becomes incapacitated, while a will provides no such benefit and only becomes operational at death. And, with all the added functionality and efficiency of a private living trust, and the ability of a married couple to establish one trust for an entire family, even a blended family, a living trust can generally provide a more comprehensive and structured approach to estate planning than a simple will.
About the Author
Dan Hales has been a trust and estate planning attorney for nearly 30 years. During that time, I’ve seen many clients misplace or lose their trusts or wills, and then have to pay me or another attorney a lot of money to replace them. I’ve seen many clients whose trusts and estate planning documents have been destroyed by fire, damaged by flood, stolen, or lost while moving. Sometimes people just can’t remember where they put these important documents. Unfortunately, paper documents are just paper, and paper isn’t built to last. Existing online services only help you to create an old-fashioned paper document which must still be printed out before it can be signed. Once printed it, too, can be lost or stolen.
I sought a practical, efficient solution, and Modern Trust was born. Now, people can create, sign, and maintain their living trusts quickly and easily online, without using obsolete paper documents. Once completed, your living trust can be electronically signed and stored online, safely and privately. You can print out your trust document if you want, or email it to a loved one. In the meantime, your document is stored safely and securely online in the encrypted Modern Trust vault, accessible only by you, or later, by your chosen successor trustee.