What is the Difference Between a Will and a Trust?
It’s important to understand the key differences between a will and a trust, as they are the two most common methods for planning your estate and protecting your loved ones when you have passed on.
This is to ensure that all of your assets remain protected against any eventuality — particularly if something was to happen to you suddenly.. In this blog, we will detail how wills and trusts work, what the difference is between the two, which is better, and determine what makes them so important.
How Does a Will Work?
A will is a legal document intended for a person to state their wishes should they pass away. This includes distribution of assets, childcare, etc. Should you die without a will, intestacy rules are in place stating how your assets will be distributed. However, this is unlikely to be how you would wish, and can be stressful for loved ones.
When creating a will of your own, there are multiple things you should consider:
- What assets do you have to give: Common contents of a person’s estate can include property, investments, belongings, etc. It is important in the early stages of preparing your will to clearly state which assets you intend to pass on.
- Who will be your beneficiaries: Likely the most important step in the entire process, your beneficiaries are those who will be receiving your assets. Clearly stating who your beneficiaries are is vital to the execution of your will.
- Will there be any special circumstances: It is not uncommon for an asset to be held for a loved one in situ for a time before being passed to the beneficiary. This can often be due to their age or mental capacity. The process is completed via a third party who will take care of the asset before passing it on to the intended beneficiary.
- Who is your executor: The appointment of the right executor can be the difference between your wishes being followed to the letter or not at all. The executor is the person responsible for distributing your assets. An executor can be a loved one, somebody you trust — or for that extra security — a solicitor who will have a more thorough understanding of the law and the procedures to follow.
What is a Trust and How Does it Work?
A trust is another commonly used and effective estate planning method you can put in place. They are often associated with the extremely wealthy but this is a misconception. A trust can be beneficial for anybody, no matter their net worth. The purpose of a trust is to leave your assets behind for a loved one in a more controlled environment.
The purpose of a trust is to to allow a party to set aside their assets and funds for loved ones/friends/charities, while being freely able to state how, where, when, and why they wish for them to be distributed in that way. During the purpose, one or more persons will be appointed by the party providing the funds (the grantor) to the position of trustee.
Your trustee is the person responsible for the assets held within the trust, to make sure that the wishes of the grantor are followed.
There are multiple different types of trust — depending on the situation and stipulations the grantor wishes. The most common are: asset protection, family, and property protection trusts.
Trust vs Will: What’s the Difference?
For those not totally in the know, the difference between a will and trust is that a will is a document that covers how you want your affairs to be handled and your assets distributed upon your death, while a trust is based upon the management of assets upon death.
One of the biggest reasons that there can be confusion between wills and trusts is that in some key areas — while still being distinct and having several differences — there is some overlap between the two. When it comes down to it, both are there to protect and benefit your loved ones after you are gone — it is just the method and circumstances of protection and the total package that differs.
Some of the key differences between the two is that wills don’t go into effect until you pass away, whereas a trust can go into effect immediately upon it being signed. Additionally, in wills, unlike trusts, you are able to make arrangements for children and pets, as well as specify your final arrangement wishes.
Conversely, trusts are more complicated fiduciary agreements, meaning that more detail into your wishes can be included, with more stipulations and conditions than in a basic will.
Which is Better; a Will or a Trust?
Both wills and trusts have their own distinct advantages. They are both different in so many ways (despite having some similarities) that one can never be definitively seen as better than the other — they are both essential forms of estate planning, and both offer protection and peace of mind for you and your loved ones.
The pros of a will include:
- Considerations for children/pets can be included
- Avoid assets being distributed according to the laws of intestacy
- Avoid large inheritance tax implications
The pros of a trust are:
- Due to its status as a contract, terms of a trust are more private.
- Your heirs are able to avoid probate
- More control over what happens to your assets than a will
When it comes to estate planning and asking yourself “do I need a will or trust”, we feel passionately that this should not be considered an either/or situation. Instead, why eschew the security of both to instead arbitrarily select one. Possessing both a will AND trust can be particularly beneficial for persons with large, more complex estates.
However, this is, of course, situational. For a person with a relatively small estate, with simple, easy-to-transfer assets, and equally simple wishes, a basic will may be the easiest and most efficient route. Equally, a will represents the most affordable method of estate planning, so if money is tight then a will is likely the way to go to ensure your loved ones are protected.
It should be remembered that if you opt for a trust without a will, it is likely that you will face significant issues caused by intestacy laws against any assets not covered under the trust.
How Just Wills and Legal Services can Help
The advantages that can come with having both a will and trust factored into your estate plan are huge. While both wills do have their individual benefits, combining them is the most effective way of ensuring that you remain protected against any influential factors, while also having the maximum flexibility possible.
The process of estate planning can be difficult — there are all manner of potential moving parts that, if can cause both financial and emotional stress down the line; either for you, or your loved ones.
Just Wills and Legal Services specialist team have been operating in the fields of wills, probate, trusts, estate planning, power of attorney, and more for decades. You can rely on us to provide you with peace of mind and an efficient, effective service throughout.
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