Estate planning is an essential task for ensuring that your assets are managed and distributed according to your wishes after your death. Two of the most common tools for this purpose are wills and trusts. While both legal documents are used to transfer assets to beneficiaries, they have important differences in structure, functionality, and application. Understanding the distinctions between a will and a trust is crucial to making informed decisions about your estate planning.

In this article, we will explore the key differences between a will and a trust, providing examples, data, and insights to help you determine which option is best suited for your needs.

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What Is a Will?

A will is a legal document that outlines how you wish your assets to be distributed upon your death. In addition to asset distribution, a will can specify guardianship of minor children, appoint executors (individuals responsible for carrying out the will's instructions), and make arrangements for the care of dependents or pets.

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Key Features of a Will:

• Comes into effect upon death: A will only takes legal effect after the person who created it (the testator) passes away.
• Probate: The will must go through probate—a court-supervised process that validates the will and oversees the distribution of assets. Going through probate without a will can be costs, read why you should avoid probate at all costs!‍
• Public document: Since wills are filed in probate court, they become part of the public record, meaning anyone can access them after death.‍
• Amendable: A will can be revised and updated as often as necessary during the testator’s lifetime. EverAfter makes this extremely easy!

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Example:

If John, a single parent, writes a will, he can specify that his savings, property, and any other assets be equally divided among his three children. In addition, he can name a guardian for his minor child to ensure they are taken care of by a trusted individual after his death.

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What Is a Trust?

A trust is a legal arrangement where one party (the grantor or settlor) transfers assets to a trustee, who holds and manages those assets on behalf of beneficiaries. Trusts are highly customizable and can be set up during the grantor's lifetime (living trust) or after death (testamentary trust).

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Key Features of a Trust:

• Can take effect during the grantor's lifetime: Trusts can be created and used while the grantor is still alive, offering flexibility in asset management.
• Bypasses probate: Unlike a will, assets in a trust typically avoid the probate process, allowing for faster distribution to beneficiaries.
• Private document: Trusts do not become part of the public record, maintaining confidentiality regarding your estate's details.
• Customizable and flexible: Trusts can be structured to distribute assets at specific times or under certain conditions (e.g., when a beneficiary reaches a certain age or graduates from college).

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Example:

Sarah, a successful entrepreneur, creates a living trust that transfers ownership of her business to her trustee. Upon Sarah's death, the trustee will manage the business for her children until they are old enough to take over.

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Key Differences Between a Will and a Trust

While both wills and trusts play a vital role in estate planning, they differ in significant ways. Below are the primary differences between these two legal instruments.

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Legal Effect

• Will: A will only takes effect after the death of the person who created it. It is primarily focused on distributing assets after death and does not provide any mechanisms for managing assets while the individual is alive.
• Trust: A trust can take effect immediately upon creation (living trust) and can be used to manage assets both during the grantor’s lifetime and after death. A living trust is especially useful in cases where someone might become incapacitated and require asset management by a third party.

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Probate Process

• Will: Wills are subject to probate, which is the court-supervised process of validating the will, settling debts, and distributing assets. Probate can be time-consuming and expensive. According to the American Bar Association, the probate process can take anywhere from 6 months to 2 years depending on the complexity of the estate and local laws.
• Trust: A properly funded trust bypasses probate, meaning the assets can be distributed more quickly, often within weeks or months. Trusts save time and money because they do not require the same legal oversight as a will going through probate. The American Association of Retired Persons (AARP) estimates that probate can consume 5% to 7% of an estate's value, which can be avoided with a trust.

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Privacy

• Will: Wills are public documents once they enter probate, making the details of your estate, including the nature and value of assets and the identity of beneficiaries, accessible to anyone. This can lead to family disputes or even exploitation of beneficiaries.
• Trust: Trusts remain private. Since they do not go through probate, the distribution of assets is handled discreetly, protecting the privacy of both the grantor and the beneficiaries.

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Control and Flexibility

• Will: A will allows you to specify who will inherit your assets but offers limited control over how and when those assets are distributed. For instance, a beneficiary will receive their inheritance in a lump sum, regardless of their financial maturity.
• Trust: Trusts offer much greater flexibility in controlling when and how assets are distributed. For example, you can set up a trust that distributes funds gradually or only when certain conditions are met, such as reaching a particular age or achieving a specific milestone.

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Example:

A common use case is parents creating a revocable living trust for their minor children, stipulating that the trustee should release funds for education, but hold the remainder of the assets until the child reaches age 25 or shows financial responsibility.

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Costs and Time

• Will: Creating a will is generally less expensive upfront than creating a trust. The cost to draft a will ranges from $300 to $1,000 depending on complexity, according to LegalZoom. However, the probate process can become costly, especially with attorney fees and court costs.
• Trust: Setting up a trust is typically more expensive upfront, with costs ranging from $1,500 to $3,000. However, trusts avoid probate costs and may save your beneficiaries money and time in the long run.

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When to Use a Will vs. a Trust

Choosing between a will and a trust depends on your individual circumstances, goals, and priorities. Here are some scenarios where each may be more appropriate:

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When a Will Is Better:

• You have minimal assets or uncomplicated estate.
• You want to name a guardian for minor children.
• You are not concerned about the privacy of your estate.
• You want a simpler, less costly legal document for estate planning. Read more about the easiest way to create a will!

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When a Trust Is Better:

• You want to avoid probate to ensure quicker distribution of assets.
• You have minor children or dependents and want to control when and how they receive their inheritance.
• You own real estate in multiple states, which could complicate probate proceedings.
• You are concerned about privacy and want to keep your estate details confidential.
• You are planning for potential incapacity and need someone to manage your affairs while you are still alive.

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Statistics and Data on Wills and Trusts

• According to a 2023 survey by Caring.com, 67% of American adults do not have a will or living trust in place.
• Of those who have completed estate planning, 32% have used a will, while 13% have opted for a trust.
• Trusts are more commonly used by individuals with higher net worth. A Gallup Poll found that 53% of people with assets over $1 million have a trust, compared to only 12% of individuals with assets below $100,000.

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Conclusion

While both wills and trusts serve vital roles in estate planning, they are tailored to different needs. A will is simple, cost-effective, and ideal for small estates, while a trust offers privacy, flexibility, and the ability to bypass probate. Each estate planning tool has distinct advantages and potential drawbacks, so it’s essential to evaluate your goals, asset complexity, and family situation when making this important decision.

If you’re unsure which option is best for you, consulting with an estate planning attorney can provide personalized guidance to help you protect your assets and ensure they are distributed according to your wishes.

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