Important Differences Between a Will and a Trust
May 9, 2021
Determining what happens to your assets after your death is one of the fundamental aspects of responsible estate planning. Various options are available that can ease asset disposition and ensure that your wishes are carried out. Without a valid will or trust in place, the disposition of your assets will be determined under applicable state law and may not necessarily be consistent with your wishes.
Either a will or a revocable living trust (with a pour-over will) are important components of a comprehensive estate plan, but they function very differently. It is important to understand the differences to determine what type of plan is the best fit for you.
What Are the Differences?
A will nominates a personal representative (or executor) to carry out your instructions regarding who will receive your assets after your death and can also name a guardian if you have minor children. If a trust is created after your death (known as a “testamentary trust”), a trustee is also appointed to manage the trust for your beneficiaries.
A revocable living trust is created by you and can hold title to property during your lifetime with the authority to manage that property upon incapacity and death. If the trust is fully funded with your assets, probate may be avoided at your death. As the grantor, you can amend or revoke the trust at any time. During your lifetime, you may also serve as a trustee to manage the trust. Upon your incapacity or death, a successor trustee will be appointed.
Typically, a pour-over will is used in conjunction with a revocable living trust to “pour” any assets into the trust that were not previously funded. A pour-over will does not typically contain any dispositive provisions, but it may name a guardian for minor children.
While a will becomes a public document after your death, a trust remains private and does not typically require court involvement.
When Does a Will-Based Plan Make Sense?
A will-based plan may make sense for someone with a relatively simple situation that does not own real property outside their state of residence and does not have significant privacy concerns. However, if you happen to live in a state where probate may be especially expensive and cumbersome, a will-based plan may not be a preferred option and you may want to consider a trust-based plan instead.
When Does a Trust-Based Plan Make Sense?
A trust-based plan may be a good idea for someone who has significant assets, including business interests, or someone who owns real property outside of their state of residence. If the real property is transferred to your trust prior to death, then you may avoid probate in the state where the real property is located. This is especially important if you own real property in multiple states so that you may avoid probate in each of those states (commonly referred to as “ancillary probate”).
A trust can also help maintain privacy and is not a matter of public record. Since it’s in effect during your lifetime, it can address incapacity and can be funded with assets prior to your death. A trust-based plan is a good option if your wish is to have a comprehensive and streamlined plan in place.
What Type of Plan Do You Have?
If you don’t have a plan in place, consider which type of plan may be the best fit for you. If it’s been a while since you’ve reviewed your plan, your situation may have changed and you may need a different type of plan.
Finally, if you have a trust-based plan (or are planning on putting one in place), you will want to be sure to fund assets in your trust and update your beneficiary designations accordingly. Otherwise, your plan may not work as intended.
Investment and insurance products and services are not a deposit, are not FDIC insured, are not insured by any federal government agency, are not guaranteed by the bank, and may go down in value. This information is not legal, investment, accounting or tax advice and is for informational purposes only. Readers should not rely on this information as a substitute for their own research or for obtaining legal, accounting or tax advice from their own counsel. Information is current as of April 28, 2021 and is subject to change without notice.
