Wills and trusts are both good ways to secure your legacy. These estate planning documents help ensure your property will be passed on to the people of your choice, whether those are your children, extended family, a nonprofit organization, or a combination of beneficiaries.
Below, we’ll guide you through the differences between a will and a trust. We’ll also discuss which one makes the most sense for you and how each can fit into your estate planning process.
What Is a Will?
A will is a legal document that defines who will receive someone’s property after they pass away. It also guides survivors on matters like who will execute the will, who should receive guardianship of any minor children, and how to handle the funeral and burial.
To make your will legally valid, you and two non-related witnesses must sign and date the document. You should also get the will notarized, which means it is certified by a licensed public officer as having authentic signatures.
If you have a will, it becomes a matter of public record after your death. A probate court will oversee its execution and any disputes, and it will be publically available in the court’s records.
What Is a Trust?
A trust is a legal contract that gives someone else the right to hold and manage a person’s assets for the benefit of a specific person or purpose. It can apply during the person’s lifetime, after their death, or during any other period of time you specify.
If you create a trust, you (the grantor/trustor) transfer part of your property to an account managed by a fiduciary (the trustee). The trust documents define how they should manage the assets and distribute them to the beneficiaries you designate, such as a child who is not yet of age or a nonprofit organization you want to help. The trustee is required to abide by the terms of the trust document and handle your property in the best interests of the beneficiaries.
There are two main categories of trusts: living trusts and testamentary trusts. A living trust is one that is created during your lifetime, while a testamentary trust is created after your death based on the directions in your will. Within both categories, there are several types of trust:
- Revocable trusts can be altered or terminated during your lifetime. You are effectively still the owner for tax purposes, which also means the assets will be included in your taxable estate after your death.
- Irrevocable trusts involve giving up your ownership rights. The income from the assets isn’t included in your taxable income or estate, which helps protect the assets from your creditors.
- Charitable trusts are trusts that benefit charities but also provide an economic return for you or a non-charitable beneficiary. After a charitable trust’s term expires, the assets must be distributed to charities. The trust’s term must be based on either the life of a non-charitable beneficiary or a period no longer than 20 years. Tax laws provide special benefits for these trusts.
- Special needs trusts give financial support to an individual with a disability without jeopardizing their eligibility for Supplemental Security Income (SSI) and other government benefits.
Using a trust to transfer your property avoids the probate process. That helps keep information about the nature and value of your assets private.
However, it’s often expensive to create and manage a trust. Unlike a will, a trust requires ongoing management. It may also need to be filed with the tax authorities every year.
Wills vs. Trusts: Which Legal Document Is Right For You?
There’s no reason why you can’t have both a will and a trust. People who create trusts typically also create a will to handle any post-death matters that aren’t covered by the trust.
It nearly always makes sense to create a will. If you don’t have a valid will when you pass away, some or all of your property will be subject to state intestacy laws. Under common law, that typically means the property goes to your spouse first, then to children, extended family, and descendants, and then to the state if no family exists. Even if your wishes match common law, having a will can reduce the court processes and fees your family must deal with after your death.
A trust gives you and your heirs more privacy about the nature and value of your assets. That often makes them a good option for family businesses or for real estate held through an entity that you don’t want to be publicly identified with the owner.
However, trusts are expensive. If your estate isn’t worth a significant amount, it likely isn’t worth it to create one.
In Summary: The Difference Between a Will and a Trust
- A will takes effect after your death, but a trust can take effect for any period of time, including during your lifetime.
- Some types of trusts involve effectively giving up your ownership of the involved property during your lifetime.
- While a will document becomes publicly available after your death through the probate court records, a trust does not.
- Creating a trust is typically more complicated and may involve ongoing expenses.
Get Help With Estate Planning in Western Washington
Whether you create a will, a trust, or both, estate planning has a lot of legal repercussions. Common mistakes like failing to be specific enough about your wishes can lead to a different outcome than what you intended.
Working with the right estate planning attorney can help you avoid potential problems with your will and trust documents. They can guide you on the best options for your beneficiaries and help you cover any assets you may have forgotten about. If you’re in Western Washington and need help planning your will or trust, contact the Anderson Hunter Law Firm today.