What Is the Difference Between a Will and a Trust?
Estate planning is an essential step in securing your family’s future and ensuring your assets are distributed according to your wishes. However, understanding the best tools for your estate plan can be overwhelming. Two of the most common legal instruments in estate planning are wills and trusts. While they serve similar purposes, they function in different ways and offer distinct advantages.
This article will explore the key differences between wills and trusts, helping you determine which option—or combination—is best suited to your needs.
What Is a Will?
A will is a legally binding document that outlines how your assets should be distributed upon your death. It serves as a crucial tool for directing the transfer of your property and ensuring your final wishes are honored.
One of the primary benefits of a will is its ability to specify beneficiaries for your assets. This means you can designate who will inherit your property, money, or personal belongings. Additionally, if you have minor children, a will allows you to appoint a guardian to care for them in the event of your passing. Without this designation, the court will make this decision, which may not align with your preferences.
Another key role of a will is appointing an executor. This person is responsible for carrying out the terms of your will, ensuring your debts are paid, and overseeing the proper distribution of your assets. The executor plays a crucial role in ensuring that the estate is handled efficiently and fairly.
How a Will Works
A will only takes effect after your death, meaning that during your lifetime, it does not control or manage your assets. Once you pass away, the document must go through probate, a legal process where a court validates the will, settles debts, and distributes assets according to your instructions.
It is important to note that a will only covers assets solely in your name. Jointly owned assets, life insurance policies with designated beneficiaries, and retirement accounts typically bypass the will and go directly to the named beneficiaries.
What Is a Trust?
A trust is a legal arrangement that allows you (the grantor) to transfer assets to a trust, which is then managed by a trustee on behalf of your beneficiaries. Unlike a will, a trust becomes effective as soon as it is created and funded, allowing you to manage and control assets during your lifetime.
One of the most common types of trusts is a revocable living trust. This type of trust allows you to maintain control over your assets while you are alive, making changes or revoking it if necessary. Other types of trusts, such as irrevocable trusts, offer additional benefits like asset protection and tax advantages but limit your ability to alter them once established.
How a Trust Works
A trust takes effect immediately upon its creation, meaning you can place assets in the trust and manage them as needed. Upon your passing, the trustee takes over management responsibilities and distributes the assets according to your predetermined instructions.
One of the major benefits of a trust is that it avoids probate, allowing assets to pass directly to beneficiaries without court involvement. This can save time and money while keeping your estate matters private. Trusts can also provide more control over how and when assets are distributed, making them an excellent choice for those who wish to provide for beneficiaries over time rather than in a lump sum.
Trusts are also useful for protecting assets from creditors and lawsuits, depending on the type of trust you establish. They can also be particularly beneficial for individuals who own property in multiple states, as they can simplify the transfer process and reduce legal complications.
Key Differences Between a Will and a Trust
| Feature | Will | Trust |
|---|---|---|
| Effective Date | Becomes active upon death | Becomes active immediately |
| Probate | Must go through probate | Avoids probate entirely |
| Privacy | Becomes public record | Remains private |
| Control During Life | Cannot manage assets while alive | Can manage assets while alive |
| Cost to Set Up | Less expensive initially | Higher upfront costs, but saves money in the long run |
Advantages of a Will
A will remains one of the simplest and most cost-effective ways to outline your final wishes.
Why You Might Choose a Will
- Straightforward and Affordable
Creating a will is generally simpler and less expensive than setting up a trust. For many people, especially those with smaller estates, a will is sufficient to meet their needs. - Appoints a Guardian for Minor Children
A will is the only legal document that allows you to name a guardian for your children. This is crucial for parents who want to ensure their children are cared for by a trusted individual. - Covers Any Assets Not Included in a Trust
Even if you have a trust, a will serves as a backup plan for any assets that were not transferred into the trust before your passing.
Limitations of a Will
- Requires probate, which can be time-consuming and expensive.
- Lacks asset protection, meaning creditors and lawsuits may claim assets before they reach beneficiaries.
Advantages of a Trust
Trusts offer significant benefits for those looking for greater control over their estate and privacy.
Why You Might Choose a Trust
- Avoids Probate
Assets held in a trust bypass probate, allowing for a quicker and more cost-effective distribution. - Maintains Privacy
Unlike wills, trusts are not public record, keeping your financial affairs confidential. - Provides Ongoing Asset Management
A trust allows you to dictate how and when assets are distributed, ensuring that beneficiaries receive their inheritance in a controlled manner. - Protects Assets
Certain types of trusts shield assets from creditors, lawsuits, and even potential financial mismanagement by beneficiaries.
Limitations of a Trust
- Higher initial costs to set up and maintain.
- Requires active management to ensure assets are properly transferred into the trust.
Do You Need a Will, a Trust, or Both?
For most people, a comprehensive estate plan includes both a will and a trust, as they complement each other.
When a Will May Be Enough
- You have minor children and need to designate a guardian.
- Your estate is relatively small, and probate costs are not a major concern.
When a Trust May Be the Better Choice
- You want to avoid probate for privacy or efficiency.
- You own property in multiple states.
- You want to control how and when assets are distributed to beneficiaries.
Estate Planning Considerations in New Jersey and New York
New Jersey
Probate in New Jersey is generally less expensive and time-consuming than in other states, but a trust can still offer benefits such as privacy and efficiency. Additionally, New Jersey imposes an inheritance tax on certain beneficiaries, which a trust may help minimize.
New York
Probate in New York, particularly in major cities, can be complex and costly. A trust can simplify estate administration. New York also has its own estate tax, and proper planning with a trust can help reduce the taxable value of your estate.
Common Estate Planning Mistakes to Avoid
- Relying only on a will for complex estates that would benefit from a trust.
- Failing to properly fund a trust, rendering it ineffective.
- Not updating your estate plan after major life changes like marriage, divorce, or the birth of a child.
Work with an Experienced Estate Planning Attorney
Navigating the complexities of wills and trusts can be challenging, but you don’t have to do it alone. An experienced estate planning attorney can help you:
- Determine whether a will, trust, or both are right for your situation.
- Draft legally sound documents that comply with state laws.
- Ensure your estate plan aligns with your long-term goals and protects your loved ones.
Start Planning Today
Understanding the differences between a will and a trust is the first step in creating a solid estate plan. Whether you need a simple will or a comprehensive trust, taking action now can provide you and your family with peace of mind.
Contact us today to schedule a consultation and start securing your legacy.
Mitchell C. Beinhaker, Esq. is a business lawyer and estates attorney who runs a solo legal & consulting practice representing business owners, entrepreneurs, executives, and professionals. Through his 30+ years of experience, Mitchell has handled business development, marketing, firm management, along with business transactional work for clients of the firm. He has extensive experience with corporate governance, commercial transactions, real estate, and risk analysis. Using his years of practical experience, he drafts contracts, negotiates purchases, and can manage outside counsel for any corporate situation. For business owners and executives, he creates and implements estate plans, along with succession plans to help companies continue for future generations.
Mitchell is the co-author of 10 Ways to Get Sued by Anyone & Everyone: the small business owners guide to staying out of court, available in paperback and kindle from Amazon.
If you need legal help with any of our services, contact our office for a free consultation. You can email us at info@beinhakerlaw.com. To learn more about Mitchell and his practice, visit beinhakerlaw.com.
Beinhaker Law and Mitchell C. Beinhaker, Esq. do not guarantee the accuracy of any information provided in this article. Its not to be construed as advice of any kind. Be sure to check with your local professionals before making any decisions.
