Every adult should have estate plans in place, but not everybody has to take the same approach. Wills and trusts are two different paths you can use to achieve your goals, but they have vastly different implications for your estate.
What’s the difference between a trust and a will? Which one is right for you? Here’s what you should know:
Wills and trusts aren’t mutually exclusive
A will is a document that leaves instructions for the distribution of your assets after you die – and it can be used to do other things, like appoint a guardian for your minor children and outline your wishes for your remains.
In comparison, a trust is a fiduciary vehicle. Once granted and funded, the assets in the trust are administered by a trustee for the named beneficiaries.
The distinctions between the two include:
- Assets listed in a will must go through the probate process, while assets in a trust do not. Probate is the legal process of validating a will, paying your final debts and distributing the remaining assets to your heirs. It can be a lengthy and expensive process that depletes your estate’s value and delays an inheritance quite a bit.
- Trusts require more upkeep than wills. Even though wills should periodically be updated and reviewed, they aren’t as high-maintenance as a trust. Once you create a trust, you need to keep adding all new assets to it as you acquire them.
- Trusts offer more protection from creditors than wills. The assets in a trust belong to the trust, not you or your estate, so your creditors can’t come after them. (Similarly, the right trust can also protect an inheritance against your heir’s creditors, or keep your heirs from losing their inheritance in a divorce.) Assets in your will are subject to creditors’ claims.
- Probate is a public process, but trusts are private. If you are concerned about people knowing how much your heirs receive, a trust is the way to go.
Wills and trusts often augment each other, so what works best for you may be a unique combination of both. Find out more about your estate planning options today.