“Perhaps you have been thinking about your estate planning, and you have worked hard and accumulated some assets. It is only natural that you would want to have a say in what happens to them once you die. One question that might come up is whether you need a will or a trust, or perhaps both. What’s the difference?”
WMUR explains in an article, “Money Matters: Wills vs. Trusts,” that a will is a legal document in which you can instruct how your property will be given to your heirs when you pass away. A will must be probated, or run through the probate court system, to wrap up your affairs after your debts are paid. An executor is designated in the will as the individual who is responsible for carrying out your wishes.
On the other hand, a trust is a legal document and the grantor is the person who creates the trust. The grantor decides what assets are going to be included, selects the trustee and chooses beneficiaries. The trustee manages the property in the trust and protects the assets for the beneficiary. The trustee distributes assets according to the trust’s provisions.
The grantor can be the trustee, and if it’s you, you need to name a successor trustee, in case you are unable to function as trustee. The beneficiary can be you during your lifetime and then your spouse, children, or friends at your death. The trust also directs when and how the assets are to be distributed to the beneficiaries.
For a trust to function properly, you’ll need to transfer the title of assets to the trust. For example, your brokerage account can be transferred into a trust account, and IRAs and 401(k) s can name the trust as the beneficiary.
Here are some significant differences between wills and trusts:
- Will are public records, but trusts are usually private;
- You must transfer assets to your trust for it to work, while you’re alive. This is not the case with a will;
- A trust can manage assets while you’re incapacitated, but a will only works at your death;
- With property in more than one state, you might be able to avoid probate in each state by placing all of the property in a trust; and
- You can designate a guardian for your minor children or dependents in a will, but not a trust.
In some situations, you may need to have both. Talk with a seasoned estate planning attorney about this and any questions that you have.
Reference: WMUR (April 13, 2017) “Money Matters: Wills vs. Trusts”