The Difference Between a Trust and a Will

Estate Plan 1.png

We are often asked to explain the difference between a trust and a will. People want to know why, if they have one, might they need the other. Since both are associated with wealth transfer, we assume they are the same, but that's not an assumption you want to make. Estate planning isn't about protecting your money as much as it's about protecting your relationships. Too often, we find families squabbling over an inheritance to the point that the lawyers get the lion's share of what has been left behind. Knowing the components of an estate plan and how they work could be the difference between bringing you family together and having it fall apart.

Will

A will is a document that directs how your assets are to be handled once you've died. The probate court oversees the process to be sure it's carried out to your instruction. The downside to that is probate can be expensive and very time consuming. A will can provide guardianship for your children and declare specific directions you'd like to leave for your funeral. None of these things occur until you pass.

Trust

A trust is a legal entity complete with a tax identification number. A trust may provide some tax relief for your assets, but unlike a will, it won't provide for a conservatorship of your kids nor will it denote the details of your funeral. One of the biggest differences between the two is that a trust can function both during your life and after you're gone. The trust will provide an income stream to its grantor, that's you, and leave the remainder of the assets to beneficiaries. Trusts can also be created to deal with very specific issues such as spendthrift beneficiaries or even making sure that your special needs beneficiary is able to take advantage of government programs that may otherwise be unavailable. It's very important with a trust that the assets are placed in the name of the trust as it has no authority over assets not held in its name. A trust doesn't pass through probate court, which can save you the time and legal fees you may have otherwise paid.

Healthcare Directives

Many people have had discussions with their spouses about what to do in a difficult medical situation. It's the age old question about pulling the plug. Since we don't always want those choices to be made by others or we choose not to put the stress of that choice on them, we should always create advanced healthcare directives as part of an estate plan. These legal documents provide instruction to medical professionals on your behalf as to how you want a situation handled. Loved ones may make rash, emotional choices or even choices that aren't in your best interest. The dark side can be very disturbing. Greedy children and spouses may consider the monetary benefit of your death and choose not to pursue action that might otherwise save you. With a well defined healthcare plan you can take control before any of these possibilities occurs. 

The two most common reasons I see people failing to accomplish these important tasks are a fear of the assumed cost and not making it a priority. An attorney specializing in estate planning will tell you that the cost will reflect the complexity of the work, but anyone who has ever inherited an estate that wasn't well conceived will tell you that cost shouldn't be your biggest concern. Spending the money now could save your beneficiaries an exponential amount after you're gone. This process is not one to take lightly. If you take the cheap way out by using Legal Zoom or the free forms you can find online, expect to run into problems.

Estate planning is something that must be very well thought out and tailored to each person. We recommend finding an attorney that specializes in estate planning and whom will work in conjunction with your CPA and financial planner to create the best possible strategies for you. When you interview attorneys for this position, pay special attention to the questions they ask you. A good estate planner will work with you to discover the things you don't yet know about yourself and highlight the challenges you don't yet know you face.