Understanding the difference between a will and a trust, including their advantages and disadvantages, is important for effective estate planning. A trust is a legal entity holding and managing assets for another person or organization, explains a recent article from SmartAsset, “Trust Fund vs. Will: Which Is More Essential For Estate Planning?” A will is a legal document directing the distribution of assets after death. Both have a role to play in estate planning.

A trust is a legal arrangement where a trustee holds and manages assets for the benefit of another party, known as the beneficiary. There can be multiple beneficiaries, and organizations may be beneficiaries in addition to individuals. The trust can hold cash, investments, real estate, or other property types. The trust document details the rules and guidelines for the trustee to follow while managing the assets. This gives the grantor—the person who created the trust—a lot of control over how the assets are used during life or after their death.

Different types of trusts serve various purposes, depending on the grantor’s financial and family situation. A family with a developmentally disabled member may use a Special Needs Trust to ensure long-term security and care for their child. A wealthy family planning for estate tax liabilities may use an irrevocable trust to remove assets from their taxable estate.

A will is a legal document used to express an individual’s wishes for the distribution of their property after death. The will is only effective after the testator, or the person creating the will, has died. Unlike a trust, nothing in the will is enforceable during the person’s lifetime. The will is overseen and executed through probate, a judicial procedure. Prepared correctly, a will can speed up access to beneficiaries and ensure that the decedent’s wishes are followed.

Creating a will includes naming an executor to carry out the terms of the will, identifying beneficiaries, and signing the document in the presence of witnesses. Wills are state-specific, meaning the laws of each state govern how a will needs to be prepared and the requirements for witnesses. A local estate planning attorney should be used ensure that the will aligns with state law.

When the will goes through probate, it becomes part of the public record, and anyone wishing to review it in its entirety may do so. For many individuals, the lack of privacy is a reason to place assets in trusts, which remain private.

Whether you use trusts, a will, or both, ensure that you’ve titled assets correctly, so beneficiaries can have access while minimizing estate taxes. An experienced estate planning attorney can help you to create an estate plan that is best suited for you and your family’s needs.

Reference: SmartAsset (Oct. 10, 2023) “Trust Fund vs. Will: Which Is More Essential For Estate Planning?”