Many people use the terms “will” and “trust” interchangeably, but these documents are very different. In many cases, it’s wise to set up both a will and a trust as components of a comprehensive estate plan.
What is a will?
A will is a legal document that names who you want to receive your property upon your death, defines final wishes, and nominates a guardian for surviving minor children.
An executor is someone responsible for carrying out the wishes of the will.
What is a trust?
A trust is a legal document that establishes what you want to happen:
- To your property after you’re gone
- To you, if you become incapacitated.
In short, both a will and a trust allow you to: (1) make your wishes known; (2) choose a person to settle your affairs on your behalf; (3) decide who receives your assets upon your passing.
What are the Differences Between a Will and a Trust?
A will does not come into effect until after death, whereas a trust takes effect immediately.
If you become incapacitated and have only created a will, the court will appoint a guardian or conservator to manage your affairs.
In contrast, trusts allow you to serve as trustee over your assets during your lifetime. If you become incapacitated, the back-up trustee designated in your trust manages your assets for you and your beneficiaries. You have control over who you name as your successor trustee, so a court-appointed guardian or conservator is unnecessary.
For more information about how to choose an effective trustee, see How to Choose a Trustee.
Upon death, wills must be submitted to the probate court for administration. Probate is the public court process that distributes assets to the correct people, including beneficiaries identified in your will or heirs as determined by state law.
In many cases, probate can be a time-consuming, expensive process. To learn more about probate, see What You Need to Know About Estate Planning.
If you have a trust in place when you pass away, your trustee will step in to manage and distribute your assets according to the terms you set. No probate court involvement is necessary, and unlike probate, trusts are privately administered.
Differences Between A Will And A Trust
|Features & Benefits||Will||Trust|
|Effective date||Death||Death & incapacity|
|Provides incapacity plan||No||Yes|
|Provides maximum control to creator||No||Yes|
|Names a guardian for minors||Yes||No|
Do I Need a Trust If I Have a Will?
A comprehensive estate plan will typically include both a will and a trust. By creating both, you will keep control over your assets in the events of incapacity and death, avoid probate, maintain privacy, name a guardian for underage children, and ensure that family, friends, and charitable organizations receive distributions in accordance with your wishes.
They are both an essential part of your long-term financial plan. It’s important to meet with a qualified estate planning attorney or trust officer about how to best protect your assets and beneficiaries.
This article is for informational and educational purposes only and is not intended to provide specific legal or tax advice. For specific legal or tax advice, please consult with your attorney and/or accountant. Trust and Investment Products are uninsured, not guaranteed by Members Trust Company, any credit union or any federal agency. Any investment exposes an investor to investment risk, including the possible loss of principal.