Wills and Trusts, Defined

Oct 31

When people think about estate planning, the terms that first come to mind are “wills” and “trusts”. But what are the differences between these tools?

A last will is a legal document that:

Is a core component of every estate plan
States how your property will be distributed after death
Names a personal representative (executor) to manage that process
Allows you to nominate guardians for minor children, and
Only takes effect after you pass away.

The term trust refers to both a legal document and a separate entity. When creating a trust, the grantor transfers assets to a trustee for the benefit of beneficiaries. There are many types of trusts, with varying purposes and tax treatment.

Trusts can be created during life through a trust agreement or at death through a will
Revocable trusts are easily changed but changing irrevocable trusts requires a legal agreement or a court order
Trusts can be used to avoid probate, safeguard assets, limit taxes, or time distributions to recipients
Trusts have a higher upfront cost, and irrevocable trusts have ongoing costs, but they limit probate expenses.

Conclusion: Trust planning does not eliminate the need for a last will, but adding a trust to their estate plan helps many people achieve their goals. It provides additional flexibility and may reduce the burden on family and friends later.