If you or a loved one is growing older, facing a health complication, or simply wanting to handle your assets responsibly, you’ve likely begun the process of estate planning. Whether your estate is small or large, leaving clear instructions in the event of your death will ease the stress on your surviving family and ensure your wishes are understood and carried out when you aren’t there to do so yourself.
As you plan your estate, you may decide to begin by writing a will. But do you know the difference between a will and a trust? It’s possible that certain things you want to include in a will would be better suited to a trust, and vice versa.
Learning the differences between these essential estate planning tools will give you a framework to take this initial, important step in safeguarding your future. As with any legal process, working with a qualified estate planning attorney will put you in the best situation for success—you don’t want your final wishes misinterpreted.
What Is a Will?
Sometimes called a “last will and testament,” a will is a written document specifying the management and distribution of an individual’s estate after his or her death. Even if you don’t have a large estate, you may want to choose who should safeguard an item of personal importance—perhaps you want to leave your old baseball cards to your nephew, or your class ring to an old friend.
The individual creating this legal instrument is called the testator, and he or she is responsible for making decisions about the method in which both real and personal property will be cared for. Along with designating beneficiaries for a person’s properties, a will may also safeguard a person’s right to designate a guardian to raise his or her young children in the event of the testator’s death.
Because a will is a legal instrument, it must contain certain elements according to the laws of the state where the individual resides in order to be enacted. If those elements are missing, the will may be declared invalid. Examples warranting the invalidation of a will include undue influence, fraud, or mistake.
What Is a Trust?
Unlike a will, which goes into effect after the testator’s death, a trust is effective as soon as it is signed. This means that you can use a trust to allocate property before your passing.
More specifically, a trust is a fiduciary relationship between an individual, called the trustor or settlor, and another party, called the trustee, which grants the trustee the right to hold the trustor’s property and/or assets for the benefit of a third party (the beneficiary). Trust arrangements are generally governed by state statutes and the courts where the property is created, but outlying factors such as the trustor’s permanent residence, current residence, his or her intention, and the location of the trust property may also be considered. Trustees are required to act in good faith, protecting the interests of the beneficiary without any personal benefit from the trust.
Trusts are governed by fairly complex rules and should be created with the consultation of a qualified attorney. Attempts to evade taxes or shelter wealth unlawfully will result in the courts declaring a trust void. A trust may be public or private, each containing complicated laws determined by the state where the trust is created. A trust may be created in a will (a testamentary trust), but may only be enacted if the will itself conforms to state laws.
Which is right for you?
Whether you want to set up a will or a trust or both will depend on your unique situation.
One area in which trusts are popular over wills is in specifying who should care for your pet in the circumstance that you are unable to care for it. While you can designate care for your pets in a will, some states—like New York—have Pet Trust Statutes in place that are tailored to this particular concern.
Alternatively, a will is necessary for assigning guardianship of your children. A trust cannot make that designation. If you should die without assigning guardianship, the court will make that decision for you.
Regardless of your situation, working with a qualified estate planning attorney will guarantee that any documents you sign or produce regarding your final wishes are legal and accurately reflect your intentions. Signing a boilerplate legal contract could jeopardize the authenticity of those decisions—putting not only your assets, but your health care directives and children’s guardianship on the line. Once you have familiarized yourself with the basics in estate planning, make an appointment to discuss your needs further.