“What is the difference between a Will and a Trust?” In many ways these Estate Planning Documents are very similar in what they accomplish the major difference is how the goals are accomplished.
Both Distribute an Inheritance At Death
Both a Will and a Trust distribute property upon the death of its maker. The major difference is how we get to the point where the property is distributed.
Five Major Differences Between a Will and a Trust
- A Will requires a probate court and judicial oversight to work. A Trust requires no oversight by a court or judge.
- A Will distributes property without restrictions which allows somebody as young as 18 with full access to an inheritance. A Trust can control the timing of distributions.
- A Will does not protect an inheritance from claims of your kid’s creditors. A Trust can be structured to protect an inheritance from a kid’s creditors and predators.
- A Will does nothing until the maker dies. A Trust is a living document which allows the person in charge the ability to manage the assets and make distributions to beneficiaries.
- A Will becomes public record that anybody can snoop to see how much is in an estate and who ended up with your assets. A Trust is a private document and few of its details require public disclosure.
Todd’s father passed away. He was named Trustee of this father estate. While he was cleaning out the house a passerby inquired whether the home would be for sale. He was able to accept an offer and close that very same month. If the property was left in a Will nothing could happen until there was approval of a probate court. Instead of one month he would have had a delay of up to 6 months and incurred attorney, publication, appraiser and filing fees. Todd was glad to avoid those troubles.
How a Will Works
A person makes a will by drafting and signing a written document. It must clearly be a statement of the person’s “Testamentary Intent”. In other words, it must state to whom property is to be given after their death. There are also strict rules on how the document is drafted and witnessed. If any of these are messed up then it is not a valid will.
A Will is a Lazy Document
After a Will is created it lays around and waits for its maker to die. None of its provisions becomes effective until the person dies. For instance, if the plan is to give land to a son, he does not own it yet. There is a a further requirement that a Probate Court determines that the Will is valid.
Once a Will is approved by the Court then it must be administered according to Probate Procedure. This includes:
- Filing a copy of the Will with the Court (making available for the public to see online)
- Notifying all heirs (relatives who could inherit)
- Notify all legatees (persons given something in the will)
- Publish notices in the Newspaper
- Appointing an Executor (the person in charge of collecting assets, paying claims and distributing assets)
- Posting a Bond (a fund used if the Executor misbehaves
- Sending notices and receiving claims from creditors
- Report all of the assets (publicly available)
- Provide and accounting
- File a report of distribution (the public what everybody receives under the will)
- Pay fees for attorneys, court clerks, mailing, publication and bonds
- Keep in mind that this is just a snapshot of what is involved in a simple case.
A probate procedure can take nine months to several years to complete.
How does a Trust Work?
In the simplest terms, a Trust is a vehicle that holds assets in the name of the Trustee. Imagine a child’s Radio Flyer wagon. When things are placed in it the wagon “owns” them. The kid pulling the wagon gets to decide what gets put into it. He also writes a Rule Book that describes when and how things are taken out of it. He pulls the handle so he is in control. Someday he will not be able to pull the handle because he dies or loses the ability to manage it. The Rule Book states who picks up the handle and what is to happen with the things in the wagon. Unlike the Will, the Trust works without the need for a Probate Court of Judicial Oversight. In Todd’s story, he picked up the handle and managed the property quickly and efficiently.