Wills and trusts are important legal documents every property owner should be familiar with. Although both terms are about distributing and managing assets at a determined time, they are different in use and purpose.
A will (also called a testament) is a legal document in which a person gives instructions on how his property will be distributed in the event of mental or physical incapacity or death. It is established by the property owner, called a testator, who appoints one or more executors to manage the estate until it has been distributed accordingly. The testator also has the authority to name beneficiaries of the will, including guardians to look after his underage children, if there are any. Young parents with few properties should draw up a will and appoint a guardian to take care of their children until they come of legal age. Although there are different types of wills, only a handful are recognized in the U.S.
A will covers both real and personal property under the testator’s name. If the transfer of the estate property is unclear, a probate court will step in and would be responsible for settling any problems in the will. The executor will still sort out the property while the courts will make sure all the terms of the will are efficiently carried out. Beneficiaries under the age of 18 will be appointed guardians by the court if none are stated in the will.
The term trust refers to a legal arrangement in which an individual (called a trustor) appoints another person or company as a trustee who will manage the estate assets for the benefit of the beneficiaries of the trust. Aside from a trustor and trustee, other important elements of a trust include a successor trustee and the beneficiaries. The terms of the trust is contained in the trust deed, and the subject of which is called the trust property.
Trusts are often created with the purpose of reducing estate taxes, and are often established within a will. Another benefit of drawing up a trust is that it does need to go through probate court. The terms of a trust are always kept confidential, which is also why a lot of people choose to create a trust. There are many types of trusts, which most experts usually categorize into two: a revocable trust (which can be modified anytime as long as the owner of the trust is alive), and an irrevocable trust (which cannot be amended unless a court decides it).
Will vs Trust
So what’s the difference between a will and a trust? In estate planning, a will is created by a testator so that his estate assets will be distributed according to his instructions upon his death. On the other hand, a trust is a legal agreement where property assets are managed by another party for the benefit of the beneficiaries in the event that the trustor is no longer in the capacity to make legal decisions. The testator appoints an executor who will distribute the estate or property assets when the time comes. A trustor initiates a trust (usually within a will) and chooses a trustee to manage the property in behalf of its beneficiaries.
Probate courts play an important role in putting the terms of the will into effect. A well-planned trust does not usually require the intervention of probate courts. This makes a trust more time and cost-efficient than drawing up a will.
|Indicates how estate assets are to be distributed||Property is transferred into a trust and managed by a trustee|
|Testor, executor, and beneficiaries||Trustor, trustee, and beneficiaries|
|Requires probate court||Usually does not require probate court|
|Terms are made public||Terms are kept private|
Check out this YouTube video for quick facts about wills and trusts.