While wills and trusts both offer a mechanism for distributing estate assets when a person dies, there are a number of key differences between them. Some of the primary distinctions include whether they are subject to probate proceedings, whether they become public record, and their tax treatment. Differences also exist in the management of any assets that are conveyed by a will or trust. In addition, a will is usually cheaper to prepare than a trust. A will can, however, be expensive to probate while a trust usually allows beneficiaries to avoid probate costs.
According to estate law in many jurisdictions, a will is a legally binding document that allows a person to give his or her assets to designated beneficiaries. The will usually takes effect only after the person dies, and distribution of the assets is typically carried out by a will executor. On the other hand, a trust can take effect during the person’s lifetime. With a trust, a trustor usually conveys assets to a trustee to hold for the benefit of the beneficiaries.
One primary differentiation between wills and trusts is how they are handled after the creator dies. In most jurisdictions, wills must go through probate, meaning that a court decides whether the will is valid and supervises the distribution of assets. This process can be costly because assets are often subject to estate taxes and the services of an estate lawyer may be required. With a trust, however, probate is avoided because assets are transferred during the trustor’s lifetime. After the trustor dies, the trust continues to function.
Confidentiality is another distinction between wills and trusts. Usually, a will becomes public record after the creator dies. In contrast, a trust generally remains private, allowing the beneficiaries to maintain confidentiality around the specific terms of the trust.
Wills and trusts are often treated differently when it comes to taxes. As a general rule, a trust can provide more tax benefits than a will. For instance, some jurisdictions allow for a certain amount of trust assets to pass to beneficiaries without requiring the payment of estate and gift taxes. Tax perks available vary from one jurisdiction to another depending on applicable trust law. A reputable trust lawyer can help determine the benefits associated with a particular trust.
Asset management works differently for wills and trusts. With a will, a power of attorney or conservatorship is usually granted in order to manage asset distribution. Trusts, however, can be managed by a trustor or trustee, depending on how the trust has been set up. If a trustor is managing a trust, he typically specifies who will manage the trust once he dies.