What’s the Difference Between a Will and Trust?

At some point in your life, you will have to face the inevitability of your own mortality. And when that day comes, you’ll want to ensure you’ve taken care of the people and things you care about.

Writing a will is the obvious answer, right? There’s more than one way to take care of those you leave behind, and there’s a lot more nuance to the idea than you might think.

In this article, we will be looking at the difference between a will and trust, giving you a better understanding of how and why you might choose one over the other. Let’s get started!

Main Difference Between a Will and Trust

A will and trust are two of the most prevalent legal tools used in estate planning. To decide which document is right for your estate planning needs, it’s essential to understand their key differences.

Function

Trusts and wills have different functions in estate planning. A will is a legal document that allows you to decide who will take care of your financial affairs and property after you pass away.

It can be used to dictate how any remaining assets should be handled. It can also designate who will care for your minor children or other dependents.

Conversely, a trust takes effect immediately upon creation and can be set up to ensure the assets are managed in a specific way. Furthermore, one of the benefits of a trust is it can be used to protect assets while ensuring the purposes of the trust are fulfilled.

Pros and Cons

One of the main pros of a will is that it is a much simpler and less expensive document to execute than a trust. It’s also easier to modify or revoke a will than a trust.

However, wills must be filed with a court to be managed and executed. This makes the process time-consuming and expensive for executors and beneficiaries.

In the meantime, a trust can bypass the probate process and help preserve privacy. Additionally, some types of trusts even have the ability to provide asset protection from creditors and claims. However, a trust is more expensive and time-consuming to set up and irrevocable once executed.

Tax Implications

A will has special provisions for tax-free transfers of property. The property that is transferred to the heirs will not be subject to estate taxes.

On the other hand, a trust is subject to income tax. Income distributions from the trust are taxable based on the trust beneficiary’s individual tax rate. In addition, any gains made from selling trust assets can also be subject to capital gains taxes unless held in a qualified trust account, such as a Roth IRA.

This is why a trustee services provider can be such a valuable resource to an estate planner. They can provide expert advice and guidance on the best options for setting up and administering a trust. Click here for trustee services if you’re considering hiring one.

Utilize a Will or a Trust Today

A will and trust are both valuable tools for estate planning. Understanding the difference between a will and trust is important so you can decide which is best for you and your family. Make sure to speak with an experienced financial professional for advice and guidance.

So what are you waiting for? Take the next step now and start planning your estate with a will or trust.

Thanks to these estate planning tips, you’re now aware of the difference between a will and a trust. Browse our other blog posts for more legal news and updates!