Everyone has heard the estate planning terms “trust” and “will”, however, everyone might not be able to explain the difference between the two. Trusts and wills are both useful estate planning tools that are used for different purposes and both are able to work together with the help of an estate planning attorney trusts to build a complete estate plan.
A last will is a legal document that does basically four things:
- It provides instructions and wishes about how your property and assets are to be distributed to your loved ones when you die.
- It designates your beneficiaries.
- You are able to choose an executor, who is the person who will manage your assets and ensure they are distributed correctly.
- You are able to name a guardian to take care of your children.
A living trust is a legal document which creates a legal relationship between one person, the trustee, holds property for the benefit of someone else, the beneficiary. This property can be real or personal property, including money, stocks, bonds, real estate, personal possessions, business interests, and automobiles. A trust involves at least two or more people: the person who creates the trust, the grantor; the person who manages the property in order to benefit the grantor and the beneficiaries, the trustee; and those who benefit from the trust, the beneficiaries. A trust has two different types of beneficiaries; one group of beneficiaries receive income from the trust throughout their lives and the other group receives assets that are left over once the first group of beneficiaries dies.
A main difference between a trust and a will is that a will only comes into effect after you die, unlike a trust which is effective as soon as you have created it. While one aspect that both a will and a trust have in common is they can both name guardians for minor children.
A will will cover any property that is in your name at the time of your death. It will not cover any property that is held in a trust or in joint tenancy. A trust, however, only covers property that has been placed in the trust. For property to be placed in the trust, it needs to be put n the name of the trust.
Probate is another difference between a will and a trust. A will needs to go through probate. This means that a court will supervise the administration of the will, makes sure of the validity of the will, and that the property is distributed the way the owner would have wanted. A trust does not need to go through probate, so a court does not need to supervise the process, which in the end usually saves money and time. One of the most common reasons people decide to make a trust is to keep their property from the probate process once they die. A will also becomes part of the public record, while a trust is able to stay private.