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What is the difference between a will and a trust?

On Behalf of | Jun 3, 2024 | Estate Planning

Many people find the terms “will” and “trust” confusing when planning for the future.

Both documents help manage and distribute assets after death, but they work in different ways.

What is a will?

According to CNBC, 67% of Americans do not have an estate plan. A will is a legal document that outlines how a person wants their executor to distribute their assets after they die. It names the beneficiaries who will receive specific assets, such as money, property or personal items. A will can also appoint a guardian for any minor children. The testator is the person creating the will.

Wills must go through a legal process called probate. During probate, a court reviews the will to ensure it is valid and oversees the distribution of assets. This process can take several months and might involve court fees. A will is a matter of public record. Despite the time and cost, a will provides clear instructions on asset distribution and can address unique wishes or circumstances.

What is a trust?

A trust is a legal arrangement that allows a person to transfer assets to a trustee, who manages them for the benefit of the beneficiaries. The grantor is the person creating the trust. Trusts can be either revocable or irrevocable. The grantor can change or revoke a revocable trust during their lifetime. The grantor cannot alter an irrevocable trust.

Unlike wills, trusts do not go through probate. This means the trustee can distribute the assets more quickly and privately. Trusts also allow for more control over how and when beneficiaries receive assets. For example, a trust can specify that a beneficiary receives funds only after reaching a certain age. Trusts are useful for managing complex estates, reducing estate taxes and protecting assets from creditors.

Estate planning is an important process. Knowing the difference between a will and a trust will help you choose the right plan.