Practically everyone has heard of the terms “will” and “trust,” and knows the context in which they are used. However, most people assume that they are one and the same – which is far from truth. In reality, these two documents and their functions are very different. While they are both estate planning devices and are very useful, they serve different kinds of purposes, to the extent that they can be used in conjunction to make a wholesome estate plan.
To start with, let’s take a look at the basic definitions of the two documents – while a will is a document that consists of directions in which your wealth and/or assets should be distributed after your demise, a trust can be used to distribute them before death or during the period of death (or even afterwards – but that’s up to you). While the will becomes active after only after your death, the trust will come into effect the moment you create it. By law, a will requires the presence of a legal representative who will see to the implementation of your wishes after your death. A trust, on the other hand, requires no such thing. A trust is generally arranged between a person (or institution, like a law firm or a bank) – known as the “trustee,” and the person who stand to receive the property – called the “beneficiary.” Trusts generally have 2 types of beneficiaries – those who receive income from the trust when they are alive, and those who receive the leftover amount after the death of the first set of beneficiaries.
Another key difference between a will and a trust is the kind of property that they cover. While a will covers only that property which is in your name at the time of your death, it does not include any property that is held in a trust or even in a joint tenancy. On the flip side, a trust can only cover property which has been transferred to it; therefore, the property must be put in the name of the trust in order to be included in it.
By rule of law, a will is supposed to pass through probate, which means that it’s administration will be overseen by a court of law, which will make sure that the will remains valid and the all the directions on it are followed according to the wishes of the deceased wanted. A trust, on the other hand, passes outside probate, and therefore does not need the supervision of a court (or the extra time and money that goes along with it. It is also for this reason that a trust can stay private unlike a will, which will ultimately become a part of public record.
Deciding which is the best option for you can be tough, since each of them have their own advantages and disadvantages and their usefulness (or lack thereof) is dependent upon your unique situation. To get the best of yours and your survivors’ interest, you must make a proper consultation with your lawyer and financial advisor.