Wills and trusts are two important estate planning documents that serve distinct purposes. Every estate plan includes a will, but only some estate plans benefit from inclusion of a trust. A trust is a flexible tool that can achieve goals that a will cannot. Understanding the difference between a will and a trust helps you work closely with your estate planning attorney to create the most suitable estate plan for your goals and needs.
A last will and testament, commonly called simply a will, is an essential document in every estate plan. It serves several important purposes, including designating the executor to administer your estate, expressing your final wishes, providing for nomination of guardians for minor children, and distributing your solely-owned property to named beneficiaries.
A trust is a special type of legal arrangement established by a complex legal document called the trust instrument (or simply, the trust). The primary purpose of a trust is to distribute the assets and property of the person who creates the trust, known as the grantor or settlor. The trust instrument executed by the grantor establishes all the terms of the trust, including designation of the trustee to administer, manage, and distribute property in the trust, identification of the beneficiaries who receive distributions from the trust, and detailed specifications concerning the permissible reasons for distributions from the trust.
The critical differences between a will and a trust lead each one to be suitable for some estate planning goals, and not suitable for other estate planning goals.
There is only one type of will, although the role of a will varies in different estate plans. In stark contrast, there are many different types of trusts. Trusts are either revocable or irrevocable, and are also either inter vivos (taking effect during the grantor’s lifetime) or testamentary (taking effect on the grantor’s death). There are many different types of trusts, each designed to accomplish a specific purpose.
A revocable living trust can be particularly beneficial in an estate plan. Assets placed in a properly structured and established revocable trust during the grantor’s lifetime avoid probate on the grantor’s death, which saves costs and expenses of estate administration, maintains the privacy of financial details of the estate, and expedites distribution of the estate to the beneficiaries.
In a revocable living trust, the grantor typically is also the beneficiary and trustee of the trust during their lifetime. The trust can be terminated or revised by the grantor at any time to change beneficiaries or distributions, or alter the designated trustee or successor trustee. As trustee while the grantor is living, they maintain full control over assets and property placed in the trust. Property can be added, removed, sold, or given away, as the grantor wishes. On the grantor’s death (and in some cases, in the event of incapacity), the trust becomes irrevocable, and the successor trustee assumes responsibility for administration and management.
A validly executed will becomes effective on your death and governs the administration of your estate. Before then, you can revoke it, amend and change it, and replace it as often as you wish. In contrast, a trust comes into existence when you execute the trust instrument. However, a trust is not operational until the grantor transfers assets and property into the trust, which is called funding the trust. Depending on the type of trust (living or testamentary), a trust may be funded during the grantor’s life or on the grantor’s death. Revocable trusts can be revoked or changed during the grantor’s lifetime; irrevocable trusts cannot be changed or revoked, except in very limited circumstances.
One of the most important differences between a will and trust relates to property distribution. When you leave assets to a beneficiary in your will, the beneficiary receives the property after the executor completes the probate process. At that time, the beneficiary receives full ownership and control of the inherited property. You cannot control how the beneficiary uses it. They may use it unwisely, give it away, waste it, or lose it to creditors or fraudsters. For some beneficiaries, such as those receiving need-based government benefits, receiving property in a will can make them ineligible to continue receiving those critical benefits. Leaving property to such a beneficiary in a will does not provide the necessary protections for the special needs individual. A trust can provide protections for beneficiaries who are receiving need-based government benefits and those at risk of being a spendthrift.
A trust gives you the ability to control distribution of property in a way that a will does not. The terms of the trust direct the trustee how and when to make distributions and establish the allowable reasons for distributions. For instance, you may limit distribution to specific purposes, like healthcare, education, necessities, travel, or any other specific uses. For some types of trusts, allowable distributions are strictly governed by the applicable laws.
The ability to control distribution of property for specific purposes and over time — even after death — is one of the primary reasons for including a trust in an estate plan. A will simply cannot accomplish that goal, because a beneficiary receives full ownership of the property on completion of the estate administration and probate process.
A second key difference between a will and trust relates to the probate process. In most cases, property left to a beneficiary in a will must go through the probate process. Probate takes time and costs money, so the beneficiary must wait to receive their inheritance. In some cases, they may even receive less because of costs and expenses of administration and probate. The probate process is public, so the will and financial details of the estate become public information.
When property is placed in a trust during the grantor’s lifetime, it does not go through the probate process. Beneficiaries may receive property sooner (depending on the terms of the trust) and with fewer cost deductions. The financial details of the estate remain private.
Probate avoidance is a second important primary reason for including a trust in an estate plan. However, an estate only avoids probate entirely if all the decedent’s property is in the trust when they pass away. Any solely-owned property left outside the trust (even inadvertently) on the grantor’s death still has to go through the probate process.
A trust offers many potential benefits that are not available in an estate plan that contains only a will and not a trust. Avoiding probate, controlling asset distribution, providing asset protection, minimizing taxes, and achieving other specific estate planning goals are possible only by including a trust in an estate plan.
Even so, a trust may not be right for everyone. Jon Turner gets to know you and understands your personal and financial circumstances before he explains the most suitable options for the structure of your estate plan. He recommends the estate planning services necessary to accomplish all your goals and address your needs, which includes recommending a trust when it can accomplish important estate planning goals for you. Every estate plan includes a will, financial power of attorney, healthcare power of attorney and living will.
Additional detailed information about all the estate planning services at Jonathan C. Turner Law Office, including wills and trusts, is available on separate website pages.
The firm is conveniently located in Springboro, Ohio. Jon welcomes inquiries from residents in Springboro and neighboring communities in Warren, Butler, and Montgomery Counties, including Centerville, Dayton, Franklin, Kettering, Lebanon, and Miamisburg. To schedule a consultation, please call 937-790-WILL or 937-790-9455, or use the online contact form.
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