What is the Difference Between a Will and a Trust?

Thinking about your own death is often unpleasant yet unfortunately necessary.

When you die there are a certain set of rules that dictate how your assets will be distributed to your heirs.  Those rules are set by your state’s estate tax laws.

If you don’t want your assets to go to the state and likely take years to be doled out to your heirs then you need a will.  Some people may also need a trust, but a will and a trust are two different legal issues.

Finding out the difference can be pretty confusing and having the wrong type of legal protection for your assets can be a catastrophic estate planning error.

How are a Will and Trust Different?


These two critical pieces of estate planning are similar, but different, and knowing the difference is key.

What is a Will?

A will is a legal document that lets you determine who gets what specific assets you have when you die.  It can also tell the courts who becomes legal guardian over any of your children.  Your will names an executor of your estate that will be responsible for a significant amount of work after you die like giving your heirs your property, paying off any creditors you had at the time of your death, and filing tax paperwork.

A will is the most critical piece of estate planning and many people live without one for years, assuming they will live longer.  Since we never know when our last day is it is really important to go ahead and get one in place today.  You can always update it later.

The only thing a will cannot distribute to your heirs is financial accounts that have beneficiary designation information assigned to them.

For example, your Roth IRA broker will always ask you during the account opening process who should be the designated beneficiary to get your account if you die.  Your will cannot give different directions that what is on the beneficiary designation of your financial accounts.

What is a Trust?

last_will_testamentA trust is a separate legal entity that holds assets that you determine.  They can be used to avoid estate tax or to make sure specific members of your family (like grandchildren) are given specific assets.

There are two main types of trusts, and each type has several specific purpose trusts that fall under it.

The two types are irrevocable and revocable.  The former means once the trust is in place you can’t change anything without permission from the beneficiary. The latter means you can revoke the trust whenever you want as long as you are alive.

The Difference Between a Will and a Trust

Critical to know: a trust does not replace a will.

Trusts deal with specific assets.  Wills deal with everything else and will make sure your estate plan is put into action as you wanted it.

Here are three easy steps to understanding the difference:

  • Everyone needs a will.
  • Some people with specific situations will use a will and a trust.
  • No one will just use a trust.

How Important are Wills and Trusts to Have for Estate Planning?

Living and dying without a will in place is going to leave your heirs with a huge problem to face without you.

Without a will your estate will be put into probate court will it will likely languish for months of years.  Probate courts are the government’s only way of determining who gets what from your estate.  That means people can come forward to make claims, no matter how outlandish, about your assets.  Just like any court case your heirs have to show evidence about what they believe you wanted and the whole thing turns into a gigantic mess.

This is especially difficult on your heirs because they are also dealing with the emotional and financial loss of you being in the family.

Losing a loved one is already difficult enough, but having to fight over what is left in court is especially draining.  Plus, if you were an income earning member of your family they might actually need those financial assets of yours in order to pay bills and avoid losing the house.

Final Thoughts

Going without a will is one of the worst financial decisions you can make in your life.

It shows a lack of forethought — we’re all going to die at some point — and really hurts your heirs.  Your wishes on who in your family gets a specific item can be ignored (and argued over in probate) and overall it just leaves gigantic mess for everyone else to clean up.

Get a will, even a basic one, today to save your heirs these problems.

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Published or updated January 23, 2013.

Comments

  1. I’ve had family members of mine that have died without a will, and we can call it interesting. Basically, we went through the house and just collected all of the pictures and personal items before the state claimed the house. The only good thing about that situation is that we did’t inherit all of the medical bills from my grandfathers cancer. A will and a trust is definitely a must, especially if you don’t want your kids to argue over your belongings.

  2. We have a problem. Person who is Step member assigned to as executive of estate. My father passed, after step mom who died 3 years before him. My father it seems didn’t have her name taken off the house either after her death, we received copy of will shortly after his death and 11 names on it. Right after burial , we had meeting which one family member was told he was going to be getting opportunity to buy house as he was my brother , my father ‘s son. Step member s didn’t like this and were upset, however their entire lives had been set up for and provided by their mother in this will as soon as my father had a stroke, homes and cars and money given to them while both alive and we were not ever given anything.
    She isolated him from his 5 children and grandchildren who were his own blood and we saw him only at his business which he owned for many years over 40 years , prior to meeting her, in fact my parents were still married before divorcing when my younger brother and sister turned 18years old . Then they filed for a divorce. Then the step mom and him married she had 7 kids by different father’s and needed a man with money. My brother was injured in a body surfing accident at time, broke his neck and became quadriplegic and I feel that he couldn’t handle this situation and found another family like his in way …sad but always wanted his own back after my brother died year’s later.
    Anyway, we tried to get my father to sell this house and property after step mom wanted to move a few years prior to her death out of state. My father sold his business for over 1 million, and home $ 850k . They paid cash for property in NM with land for $ 96k but step family told us it was over $ 350k . We saw county record’s on the sale. We got the WILL and it had 11 names , people unhappy because how things were going to go to immediate family members first, then, few weeks later , attorney paperwork arrived stating that it was invalid WILL. A name was crossed off in two areas and paper torn on corner so they were going to redo it because it would not hold up in court. We looked at it, my sister’s name and a deceased step brother s name crossed off and a tiny corner of last page torn ….We had a Orginal copy handed to us by executive power attorney the minute we arrived back home…no Mark’s on it or torn corner. They did it after the meeting! Now telling us we can not contest or we won’t get a done because it will be tied up in courts and lawyers fees.
    3 years later, property not sold , they had memorial service for their mother and an estate sale in her name after several instances of going up to house and removing all the property from home, prior to judgement . The executive person added two more person s to Will from step family which include an illigimite child supposedly of their deceased brother. We have not been given access to my father’ ‘s business account from the sale of his property and business it say on. We have no records from home sale to the newer home. Step mom was receiving chemotherapy which was experimental and they could not show money in account s. She already had a separate account because she was going to leave my father but then got cancer after the move, the step family had access to hidden account s and every time court dates came up, they told us we didn’t need to go. They are going come to find out because we are all supposed to get paperwork from attorney everytime, that isn’t happening either anymore….They are picking and choosing to whom on this side( father’s family ) to send too. If you call attorney, they say, ” I call you back ” They call Executive to estate she says don’t talk to them, I will handle and then we start getting harassed that we won’t get a penny of we call again. It’s her attorney but paperwork said it’s Estate attorney and were named? She said that we will get one cent….
    She is tied up house with realtor s who are not selling property and taking money and bleeding account for her sister who is going to divorce her husband and take and move their who wanted the house from the beginning but a lot cheaper but is waiting for her daughter to graduate high school and divorce to get the money. She has horses and farm animals. The other step sister was stealing farm equipment and taking to the stables where she worked and selling our things which were in a Huge steel metal two car garage style frame rv sized warehouse and other things from property that belonged to the estate for herself… It just gets uglier. We can’t get account access, records, transcripts, anything but her word. I want the judge to know about it but don’t know how to do this either…

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