Protecting your loved ones may mean that having both a will and trust is crucial. But what is the difference between will and living trust? Many may use the terms interchangeably, but there’s a distinct difference between a last will and testament and a trust. Here we will outline the major differences and address what may be the appropriate decision for you and your family.
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What Is The Difference Between Will and Living Trust?
When it comes to estate planning, the terms "Will" and "Trust" are among the most common, but do you really understand the difference between will and living trust? Additionally, it's important that you not only understand the major differences between each, but that you also consider their applications with respect to your general circumstances. In other words, have you considered if a last will and testament or a living trust is the best for the assets and protection measures you'd like to take for your family? Preparing for your future and making these important decisions now is the best way to make things easier on your loved ones when it really counts.
Truth is, a last will and testament and living trusts do have quite a bit of overlap, but there are also distinct difference between the two. Each of these documents outlines how you'd like your assets to be divided, and more importantly, what will happen after you die. The specific advantages and disadvantages are within the way each is carried out upon death.
What Is A Last Will And Testament?
One big difference between the two is in how and when they take effect. Wills don’t go into effect until you pass away, whereas a Trust is effective immediately upon signing, funding, and invoking it. One of the key terms in a trust is "living." It's mainly called a living trust because it's created and followed while you're still alive.
Another way to think of the major difference between a will and living trust is that Wills allow you to:
Name legal guardians for your children
Designate where your assets go
Specify final arrangements
While it is an easier process, the simplicity of a Will does come with some drawbacks. For example, Wills offer somewhat limited control over the distribution of assets. They also most likely have to go through some sort of probate process after you pass away.
What Is A Trust?
A Trust is a bit more complicated, but can provide some great benefits. Trusts:
Offer greater control over when and how your assets are distributed
Apply to any assets you hold inside the Trust
Come in many different forms and types
Keep in mind that after you create a Trust, you also need to fund it by transferring assets to it, making the Trust the owner. This does make Trusts a little more complex to set up, but note that Trusts have one major benefit over Wills. They’re often used to minimize or avoid probate entirely, which is a huge plus for some people. This alone could more than justify the additional complexity of setting up a Trust.
One of the primary disadvantages of a living trust is the cost associated with creating such a document. It almost always requires a legal expert or estate planning attorney. Additionally, while some individuals may believe that they do not need a will if they have a trust, this is sometimes not the case. If there are any assets left in the individual’s name at the time of his or her death that are not part of the trust, it can create some discrepancies, especially during the probate process. Therefore, there is often a cost to establish a trust and to create what's called a pour-over will. We outline below what a pour-over will does and its primary functions.
Which Is Better - Will Or Trust?
When we’re talking about Wills vs. Trusts, we need to keep in mind that they have very different and specific benefits. It’s not really accurate (or helpful) to assume one is “better” than the other. As with most formal legal documents, you should start by assessing your situation, your goals, and your needs. In the beginning, this can help you outline what documents are best suited for your lifestyle, family obligations, and ultimate wishes during life events and upon your passing. Only then can you find the solution that best-suits and protects your family in the most appropriate way.
Can You Have Both a Will and a Living Trust?
The simple answer here is, yes, you can have both a Will and a Living Trust. Their functions, while overlapping, are still distinguished by the way they are formulated and carried out. On one hand, trusts provide for the management and distribution of your assets during lifetime and after death. A Will, on the other hand, allows you to do things like name guardians for your children, appoint an executor for your estate, and declare your final wishes. For Estate Planning, it may be ideal to arrange for examining your assets, final wishes, and overall objectives to understand whether a Living Trust or a Last Will and Testament is better.
For example, assets that are included only in your Last Will will likely have to go through an extensive probate process. Not to mention, Last Wills are public documents. Conversely, the assets included in a Trust are typically protected from probate court. However, Trusts often come at a higher cost due to their formality and needs for an estate planning attorney. If your situation is fairly straightforward, a Will may be a more suitable option.
A Pour Over Will may be applicable to your particular situation and an estate planning attorney can help identify these needs. A Pour Over Will, which is a type of Will designed to work in conjunction with your Trust. With a Pour Over Will, anything a person owns outside of their Trust — as well as anything that is subject to their Last Will — will be paid to your Trust at the time of your death. Pour Over Wills essentially act as a backup plan to ensure all of your assets go under your Trust.
Note that a Living Will is also different from a Last Will and a Pour Over Will. A Living Will refers to a set of documents related to an individual’s medical decisions. Included in those documents are:
Advanced Health Care Directive
HIPAA Authorization Form
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Your Last Will and Testament takes effect once you pass. At that time, someone must notify the court to begin the probate process. The subsequent events that take place in effort to settle your estate and distribute property and assets can take a long time and be expensive.
Creating a will online using Wills.com is a legitimate and secure way to plan for after-death wishes. Possessing a last will and testament can help you rest assured that your family is guided in your requests in the event of your passing. Rather than using an estate planning attorney, our team of experts has designed a simple method for creating your documents online. For more information about our online last will and testament services go here.