Wills and Trusts, Defined
When people think about estate planning, the terms that first come to mind are “wills” and “trusts”. But what are the differences between these tools?
A last will is a legal document that:
Is a core component of every estate plan
States how your property will be distributed after death
Names a personal representative (executor) to manage that process
Allows you to nominate guardians for minor children, and
Only takes effect after you pass away.
The term trust refers to both a legal document and a separate entity. When creating a trust, the grantor transfers assets to a trustee for the benefit of beneficiaries. There are many types of trusts, with varying purposes and tax treatment.
Trusts can be created during life through a trust agreement or at death through a will
Revocable trusts are easily changed but changing irrevocable trusts requires a legal agreement or a court order
Trusts can be used to avoid probate, safeguard assets, limit taxes, or time distributions to recipients
Trusts have a higher upfront cost, and irrevocable trusts have ongoing costs, but they limit probate expenses.
Conclusion: Trust planning does not eliminate the need for a last will, but adding a trust to their estate plan helps many people achieve their goals. It provides additional flexibility and may reduce the burden on family and friends later.
