By Jennifer Tucker
February 27, 2024 | 2 Min. Read
With so many ways to organize your estate plan, you might have questions about which type of estate planning document is right for you. Most people have heard of a will, but what’s the difference between a will and a trust?
Both documents protect your assets and distribute them to your chosen beneficiaries, but there are key differences between the two types of arrangements.
A will lays out how you want your assets distributed after your death. In it, you can designate certain people or organizations as your beneficiaries and specify how much money or which assets each beneficiary will receive.
A trust is similar to a will in that it details how you want your assets distributed and to whom. However, a trust differs in that it functions as a legal arrangement between you, a trustee, and a beneficiary. In this scenario, the third-party trustee transfers your assets to a beneficiary.
If you’re wondering how to determine if you need a trust or a will, it depends largely on your personal circumstances. Here are a few considerations to help you determine if you need a trust or a will:
Complexity of assets. If you have a complex estate with several types of assets, such as investments, properties, and businesses, a trust can provide more flexibility and control over how your estate is distributed.
Minor beneficiaries. You might also consider creating a trust if you have a complex family situation, such as minor children or other individuals who are unable to manage their own finances. A trust can provide ongoing asset management until the beneficiary reaches a certain age or meets certain conditions.
Avoiding probate. A will goes through probate, a public legal process where the court oversees the distribution of assets. The probate process can be time-consuming and costly. A trust typically avoids probate.
Tax planning. Certain types of trusts can offer tax advantages in how they structure your assets’ distribution. The tax implications vary depending on the type of trust, your state’s tax laws, and your personal circumstances.
Both a will and a trust come with advantages and disadvantages, depending on your situation.
The primary advantage of a trust is that it allows you to provide more specific terms around which assets are distributed to which beneficiaries and when. A trust may also come with tax advantages, and it avoids the costly and time-consuming probate process.
Still, many people prefer the simplicity of a will, which can be a more straightforward and cost-effective option for estate planning. A will is a great option when your estate is less complex.
Consider consulting with a financial advisor or estate planning attorney for advice on organizing your estate plan. These experts can help you identify which arrangements best suit your situation and ensure you have all the right documents in place.