Planning for the future involves making decisions about what will happen to your belongings and assets after you are gone. Two legal tools commonly used for this purpose are wills and trusts.
While they both serve similar purposes, there are significant differences between the two.
Wills
In 2023, only 46% of Americans over 55 years of age had a will, which is a legal document that outlines the distribution of your property and assets after you pass away. It allows you to list who will inherit your belongings, appoint guardians for minor children and name someone as an executor to oversee the distribution process. However, wills need to go through the probate process, which is the court-supervised procedure for validating and executing the will. During probate, the court ensures that the will is valid and that your assets get distributed according to your wishes.
Trusts
A trust is a legal arrangement in which you transfer the ownership of assets you own to a trustee, who holds them on behalf of your beneficiaries. Unlike wills, trusts can help manage assets both during your lifetime and after your death. Trusts serve different purposes. For example, a revocable living trust allows you to retain control of your assets while you are alive and specify their management and distribution after your death.
Key differences
There are key differences between these two estate planning documents. Wills have to go through probate, while trusts generally do not. Wills become public records, whereas trusts remain private. Wills go into effect after your death, but trusts do so immediately. Trusts offer more flexibility and customization.
Whether you choose a will, trust or both will depend on your circumstances and the complexity of your estate and distribution desires.