These two estate planning tools are similar in that they each distribute your assets when you die, but there are some key differences between what they can accomplish, and how. Before we dive into the differences between a will and a trust, let’s start with a quick description of each tool.
A Quick Review of the Tools
A will is a legal document that records your wishes for how you want your assets to be distributed after you die. It also allows you to appoint a guardian for your minor children. In the state of Virginia, a will must be signed by you, a notary, and two witnesses.
A trust is a legal entity that abides by a written trust agreement. Like a will, it can also distribute assets when you pass and much more. When you set up a trust, you transfer your assets to the trust, so that the trust owns them. You also appoint a trustee (usually you, while you are living) who has legal authority over assets transferred into the trust. Once you die, the assets owned or received by the trust are distributed to beneficiaries as stated in the trust agreement.
Differences Between a Will and a Trust
While there are many differences between a will and a trust, here are the three most prominent:
A will is one and done, while a trust can be ongoing.
A will takes effect when you die, instructs your personal representative on how to execute your wishes, and then its purpose is over. Once it has completed its instructions, it is no longer an active document. A trust, on the other hand, can be active before you die and can continue to carry out your purposes after your death.
For example, we once knew a man who set up a trust to allot money to his family for yearly vacations. He created it while living and began to use it for that purpose. When he passed, his son was the appointed trustee. As his father’s trust agreement instructs, now his son uses the money for annual family vacations. The trust took effect while our friend was living, and it continues to be active now that he is gone.
A will goes through probate, while a trust avoids probate.
When you pass, a will goes through probate, the process by which the state enforces your wishes. Probate is a necessary system that ensures your assets are distributed correctly; but if your estate is complex, it can be a long and complicated process. However, a trust does not go through probate. Because your assets are in the name of the trust, when you die, technically, you do not own anything. Therefore, your estate does not need to go through probate, and your assets are handled immediately according to your trust agreement.
A will goes on public record, while a trust is private.
Because a will goes through the court system, it becomes accessible as a public record. Any interested person can research and find your will and see your assets and who you left them to. Because a trust does not go through the court system, it is inherently much more private than a will.
As you can see, there are some significant differences between a will and a trust. They both are used to distribute assets but do so in different ways and for different purposes. They each have pros and cons and deciding which one should be your main estate planning tool depends on your assets, relationships, and estate planning goals.
(Related: Do I Need a Will if I Have a Trust?)
If you need help creating a will or a trust, or would like more information, schedule an appointment with us. We’d love to help you!