A will is a document that specifies how you want to distribute your assets after your death, whereas a trust is a legal arrangement where you transfer your assets. Typically, you use a will to specify final arrangements and select guardians for your minor children. A trust is a sheltered entity that can give you greater control over your assets even when incapacitated.
They are both estate planning tools that allow individuals to designate where their assets will go upon death. However, they are not the same. Here are the key differences between a will and a trust.
Ownership
A testator is a person who owns a will and writes down their last wishes in the will document. A grantor is a person who creates a trust and transfers assets from their estate to the trust. A grantor funds the trust.
When they take effect
The trust is effective immediately once the owner signs and funds it. A will is only enforceable when the testator dies, and it comes secondary to any trusts the owner might have.
Privacy
A will is subject to probate, meaning the court must validate the will before the executor can perform the instructions. Trusts bypass probate.
Fiduciary
A testator names an executor in their will. The executor is the testator’s fiduciary. They will oversee the correct distribution of assets to the named beneficiaries. They must also file the legal requirements in probate and settle the estate taxes and debt.
The grantor appoints a trustee as their fiduciary in their trust document. The trustee is legally obligated to act in the grantor’s best interests. A trustee is different from a successor trustee. A grantor can name themselves as a trustee in a living trust and appoint a successor trustee for when they die. The grantor may also immediately forfeit their ownership rights by establishing an irrevocable trust, where the named trustee controls the assets even while the owner is alive.
Fortunately, you can use a will and a trust to solidify your estate plan. Starting a trust is more complicated than creating a will. Knowing how to appropriately incorporate a trust or multiple trusts into your estate plan can help your family avoid the probate process and reduce taxes.