What’s the difference between a trust and a will?
When planning for their future, many clients are unsure whether a trust or a will is the best option for their estate planning needs. Is a trust or a will better? Each are both important tools when planning your estate, but they differ significantly.
One of the biggest differences is the effective date of each document. A trust is effective when the “trustor” or person creating it signs the trust and funds it with assets. This means that a trust is active during a person’s lifetime. A will, on the other hand, is only effective upon the person’s passing.
Wills often provide a simpler and less expensive option for a person, or “testator,” to dispose of their assets at the time the will is prepared. Your will can name how you want your assets distributed and specify any final arrangements you desire upon your passing. Wills, however, will be subject to “probate,” a process whereby the will is filed, or “lodged,” with the court to be proven valid. The court oversees distribution of the will according to its provisions. Probate can be time-consuming and expensive, particularly if there is a challenge to the will, known as a will contest. Because the court process is public, your will becomes a public document.
Trusts, on the other hand, generally avoid the court process. When a person creates a trust, he appoints a “trustee” to manage and distribute the assets of the trust in accordance with his wishes. There is no need to file the trust with the court to oversee distribution because that is handled by the trustee. Trusts offer greater control and flexibility over a person’s assets because he can place stipulations on inheritance, including how and when his beneficiaries are eligible to inherit. While trusts tend to cost more to prepare because of the time and effort, they generally avoid the probate process altogether and are private, unlike wills. The cost a client pays upfront for a trust is usually far less than the cost to probate a will through the courts.
If you have questions regarding estate planning and what type of estate plan is best for you, contact an attorney at Lemons, Grundy & Eisenberg to see if we can assist you.