Wills and trusts are common documents used in estate planning. While each can help in the distribution of assets at death, there are important differences between the two.
Definition of a will
A last will and testament is a legal document that lets you direct how your property will be dispersed (among other things) when you die. It becomes effective only after your death. It also allows you to name a personal representative (executor) as the legal representative who will carry out your wishes.
Definition of a trust
A trust is a legal relationship in which you, the grantor or trustor, set up a trust, which holds property managed by a trustee for the benefit of another, the beneficiary. A revocable living trust is the type of trust used most often as part of a basic estate plan. "Revocable" means you can make changes to the trust or even revoke it at any time.
A living trust is created while you're living and takes effect immediately. You may transfer title or ownership of assets, such as a house, boat, automobile, jewelry, or investments, to the trust. You can add assets to the trust and remove assets thereafter.
Comparing the two
While both a will and a revocable living trust enable you to direct the distribution of your assets and property to your beneficiaries at your death, there are several differences between these documents.
- A will generally requires probate, which is a public process that may be time-consuming and expensive. A trust may avoid the probate process.
- A will can only control the disposition of assets that you own at your death, including property you held as tenancy in common.
Different documents, different features
Even if you have a revocable living trust, you should have a will to control assets not captured in the trust. Here is a summary of the basic features:
*Depends on applicable state laws.
Wills: Benefits and considerations
- In a will, you can name a guardian for minor children or dependents, which you cannot do with a trust.
- If you own real estate or hold property in more than one state, your will would have to be filed for probate in each state where you own property or assets.
- Neither a will or trust can govern the distribution of assets that pass directly to a beneficiary by contract (such as life insurance, annuities, and employer retirement plans) or by law (such as property held in joint tenancy).
Trusts: Benefits and considerations
- A trust may be used to manage your financial affairs if you become incapacitated.
- Your revocable trust can only control the distribution of assets held by the trust. This means you must transfer assets to your revocable trust while you're living, which may be a
- costly, complicated, and tedious process.
- A trust can be used to manage and administer assets you leave to minor children or dependents after your death.
- If you transfer real estate property located in more than one state to a revocable living trust, you generally won’t have to file a will covering these properties for probate in each
Combining both options
Generally, most estate plans that use a revocable trust also include a will to handle the distribution of assets not included in the trust and to name a guardian for minor children. In any case, there are costs and expenses associated with the creation and ongoing maintenance of these documents. Keep in mind that wills and trusts are legal documents generally governed by state law, which may differ from one state to the next. You should consider the counsel of an experienced estate planning professional and your legal and tax advisers before implementing a trust strategy.
Dan Flanagan is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or firstname.lastname@example.org
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances.