Trust vs. Will: What’s the Difference?

Trust vs. will. It’s simple (if not the most interesting things ever): understanding the difference between a trust and a will can save your loved ones a lot of hassle. Both tools help distribute your assets, but they work differently.

Let’s break trust vs. will down in a way that makes sense, covering the essentials of revocable and irrevocable trusts too. And how they can fit into different life stages (life changes and estate planning go hand in hand).

What’s a Will?

A will is a document where you spell out who gets what after you’re gone. It also lets you name guardians for your kids, pick an executor to carry out your wishes, and include any specific bequests or instructions.

Why People Choose Wills:

Wills are straightforward and affordable, making them a popular choice. They’re great for small estates and simple arrangements. However, there’s a catch: wills have to go through probate. Probate is a legal process that’s public and can be time-consuming and expensive. (Also, wills aren’t living documents that you can edit easily. You can do small changes with a codicil, but big changes may require an entirely new will.)

What’s a Trust?

A trust is like a box where you place your assets. At first, you manage the trust, making trusts useful right away. Later, a trustee—someone you trust—manages this box for your beneficiaries. 

Two Main Types of Trusts:

1. Revocable Trusts (Living Trusts):

• These are super flexible. You can change them whenever you want.
• Assets in the trust avoid probate, but they’re still part of your taxable estate.

1. Irrevocable Trusts:

• These are locked in once created. No take-backs.
• They’re great for protecting assets from creditors or reducing estate taxes.

Why People Choose Trusts:

Trusts skip probate, offer you privacy in estate planning, and let you control how and when your beneficiaries get their inheritance. Want to ensure your kids only get their inheritance when they’re 30? Trusts can handle that (after you get through the revocable trusts vs. irrevocable trusts debate).

A Closer Look at Revocable Trusts

Revocable trusts, or living trusts, are popular for their flexibility. You can make changes as your life evolves—whether it’s a new marriage, kids, buying a new home, divorce, selling a home, whatever.

Perks:

• Avoids Probate: No court involvement means quicker, private transfers to your heirs.
• Control During Incapacity: If something happens to you, a successor trustee can step in seamlessly.
• Flexible: You can tweak it as your circumstances change.

Downsides:

• Cost: They can more expensive to set up than a will.
• Effort: You’ll need to transfer your assets into the trust.
• Taxes: Assets in the trust are still part of your taxable estate.

Why People Choose Revocable Trusts:

The flexibility of a revocable trust means you can amend it at any time. Young families, middle-aged professionals, or anyone anticipating life changes may appreciate the flexibility of a revocable trust.

A Closer Look at Irrevocable Trusts

Irrevocable trusts are a different ballgame. Once created, they’re locked in. Irrevocable trusts are often a choice for people who want long-term solutions for things like estate taxes or asset protection.

Perks:

• Tax Savings: Assets in the trust aren’t part of your taxable estate.
• Asset Protection: Shields your assets from creditors or lawsuits.
• Structured Control: Detailed rules govern assets.

Downsides:

• Inflexibility: Changing an irrevocable trust is much more complicated than changing a revocable trust.
• Complexity: These trusts require more planning.

Why People Choose Irrevocable Trusts:

High-net-worth individuals or those with specific asset protection needs often turn to irrevocable trusts.

Revocable Trust vs. Will: How Do They Compare?

Here’s the revocable trust vs. will gist: wills are simpler and cost less upfront, but they’re public and go through probate. (Note: pour-over wills are a bit different. Here’s a short wills vs. pour-over wills breakdown.)

Revocable trusts are private, avoid probate, and let you manage your assets during your lifetime, but they require more effort to set up. (Contesting a trust is also a bit harder than contesting a will.)

Think of wills as a one-time roadmap, while revocable trusts are a flexible, ongoing management tool.

Trust vs. Will and Life Stage

Your life stage matters.

• Young Professionals: A will is often enough. It covers naming guardians for kids and deciding who gets your belongings. Although revocable trusts can evolve over time as needs change.
• Growing Families: A revocable trust shines here. It’s flexible and adapts as your family and assets grow.
• High-Net-Worth Individuals: Irrevocable trusts can help protect wealth and minimize taxes. 
• Retirees and Seniors: Revocable trusts offer peace of mind with seamless management, even if you’re incapacitated.

The Probate Problem

Nobody loves probate. It’s public, slow, and can eat into your estate. Wills go through probate, but trusts don’t. For example:

• With a will: Your home might sit in probate for months before your kids can inherit it.
• With a trust: That same home could transfer to your heirs immediately and privately.

What About Estate Taxes?

Wills and revocable trusts won’t help with estate taxes, but irrevocable trusts can. By removing assets from your taxable estate, irrevocable trusts can reduce tax liability, especially for larger estates.

The Trust vs. Will: The Overall Gist

Wills are simple and straightforward to set up, but they go through probate which is no small thing. Irrevocable trusts are locked in once set up, but they can reduce tax liability, especially for big estates. Revocable trusts are the most flexible. They don’t go through probate, can evolve easily over time and offer the most control over assets.