A will is a legal document that communicates how you want your possessions and assets distributed after your death. It usually indicates a person or organization to be your executor, and it can include information about who will care for any minor children you may have.
A trust, on the other hand, is a type of estate planning tool that can help you control your assets during your lifetime and avoid probate after your death. It can also provide tax benefits and allow you to designate beneficiaries who will receive your assets according to certain conditions.
The main difference between a will and a trust is how they take effect. Wills are not effective until you die, while a trust is effective immediately upon signing and funding it. The latter is much more convenient and can offer some additional benefits, such as the ability to name a successor trustee who will manage your assets in the event of your incapacity or death.
Another major difference between a will and a trust involves the way they distribute your assets once you die. Wills only distribute your assets at your death, while trusts can also distribute them before or after your death, as long as they meet certain criteria.
With a will, the assets are typically distributed in one lump sum, or they are transferred to your named beneficiaries (such as children) via beneficiary designations in your bank accounts and other financial institutions. Your beneficiaries will need to pay federal estate taxes if they are receiving the assets in this manner.
By contrast, a trust can stagger asset distributions over time, allowing you to disperse your money to your beneficiaries in a controlled manner while protecting them from the possibility of a sudden depletion. This method of asset distribution can be especially helpful if you have significant wealth or property, because it allows you to distribute your assets in a timely fashion without the risk that your beneficiaries will be unable to handle them.
A trust can be set up to ensure that the property you leave behind will be used for a specific purpose, such as charitable purposes. It can also protect your beneficiaries from creditors if you have a significant amount of wealth or property.
There are many types of trusts. They can be made up of different types of assets and beneficiaries, and they can be adapted to address special needs or unique circumstances.
Some common types of trusts are revocable living trusts, charitable lead trusts, and charitable remainder trusts. Some of these are more complicated than others, so it is best to consult with an attorney or a trusted financial advisor for advice about which one is best suited for your needs and goals.
The right estate plan depends on the size and complexity of your assets, your family situation, how you intend to pass along your legacy, as well as your individual preferences, such as privacy, asset management, and tax planning. To learn more about how wills and trusts can benefit you, contact an estate planning professional for a free consultation.
