- Only 42% of Americans have a will or trust set up, according to a 2017 study.
- A last will and testament is simpler and less expensive to prepare than a trust, yet faces the delays and expenses of probate before assets are disbursed.
- A trust is costlier and more complex but is likely to provide greater control, privacy, and speed when executed.
Do I Need a Will or a Trust?
The reading of a deceased person’s last will and testament is often dramatized in popular culture — as a black-clothed widow sobs, anxious relatives wait to see if they’ve been granted a piece of Uncle Harry’s vast riches.
According to Caring.com’s 2017 study, only 42% of Americans have estate planning documents, and only 36% of Americans with children under the age of 18 have estate planning documents in place.
But a will is not the only document that can lay out instructions for distributing wealth according to one’s wishes. A trust may be a better option, and there are many different types that offer flexibility and possibly more protection for assets than a will.
What’s the Difference Between a Will and a Trust?
Last Will and Testament
A last will and testament is a legal document that sets forth a person’s final wishes for the distribution of their assets.
A will also outlines who will be a guardian for a person’s minor children. Typically wills are prepared by an attorney and signed by witnesses. They are read weeks after the person passes away. Oral and holographic wills are far less likely to hold up to legal challenges than a properly prepared document.
A trust is simply an arrangement whereby a person grants control of property and assets to another, for the benefit of a third party.
They are used in situations beyond estate planning, but are popular for this purpose for a variety of reasons:
- Avoiding probate: Probate is a public legal process that can take months to complete once a will is read. During probate, the person named as executor of a will works through court to ensure the will is honored. While this takes place, it is difficult if not impossible for the assets to be distributed to beneficiaries. Unlike wills, a trust typically avoids probate.
- Tax planning: The tax implications of certain trusts can be less than other vehicles for distributing wealth.
- Privacy: As mentioned, probate is carried out in court. Any person can attend hearings and obtain documents from these public proceedings. Trusts can help shield details of a person’s wealth from more public scrutiny.
Irrevocable or Revocable Trusts
There are various types of trusts, but they normally fall into two buckets — irrevocable or revocable.
Irrevocable trusts are the most rigid. The grantor moves their assets into the irrevocable trust, and essentially no longer owns them. The only way this can be changed is if the beneficiary of the trust allows it. What it lacks in control, it may gain in tax benefit, as the assets in the trust are no longer part of the estate and are not taxed as such.
Revocable trusts remain in the control of the grantor until they die. That means the assets can still be used by the grantor at any time. Having this control could be important if the grantor develops significant medical issues and needs financial resources to address them. Revocable trusts can be altered or dissolved at any time before the grantor’s death. They usually do the job of avoiding probate, but do not have the tax benefits of an irrevocable trust.
Choosing a Will or Trust
Simply stated, a will is simpler and less expensive to prepare than a trust, yet faces the delays and expenses of probate before assets are disbursed. Trusts are costlier and more complex, but are likely to provide greater control, privacy and speed when executed. Deciding which one is right for you is a personal decision, but consulting with an experienced estate planning attorney can help bring clarity to the matter.