Wills vs Trusts – What is the Difference?
Estate planning is a very important aspect of preparing for the future. Terms such as “Wills” and “Trusts” are regularly used when planning an individual’s financial affairs, but they are often confused with one another when they have vastly different meanings.
Both Wills and Trusts are legal documents that are used to deal with one’s property. A Will is a written document that sets out a person’s wishes about how their assets and liabilities should be taken care of and distributed after death. Conversely, a trust is used to transfer property for the benefit of someone called the “beneficiary”. Trusts are typically managed by someone called a “trustee”, and the trustee holds legal title to assets for the beneficiary of a trust.
Revocable living trusts are the most common type of trust that is used in estate planning. It can be changed or the terms can be revoked at any time while the person who created the trust is still alive as long as they are still mentally competent. On the other hand, irrevocable living trusts cannot be undone, meaning that once the assets are transferred to the trustee, they cannot be taken back and the terms cannot be changed.
Although an individual can create both a will and a trust when doing estate planning, it is important to understand that there are numerous differences between them. Some of these differences include:
1. The biggest difference is that trust allows someone to transfer their assets to beneficiaries while they are still alive, whereas a will does not transfer assets until that person dies.
2. Wills must go through probate, which is a legal process to formally approve that the deceased’s will is in fact their last will and testament and to confirm the authority of the person named as the estate trustee in the will. Conversely, living trusts do not require a probate process because the property is transferred while the person who created the trust is still alive.
3. Living trusts appoint trustees to control the property while someone is alive, while will appoint executors when someone dies. Therefore, executors do not have any control over property until the person who created the will dies. It is important to note that the trustee only controls the assets to the extent they are empowered to do so by the person who created the trust.
4. Wills are publicly accessible once the person who created it dies, while trusts are private entities and no information is released upon death.
5. Trusts allow an individual to give someone a gift gradually (i.e. monthly allowances), whereas a will typically give gifts in a lump sum. Trusts may be a more appropriate tool to give gifts if the beneficiary is too young or frivolous with money.
6. If a living trust is created, the assets do not form part of the estate, meaning that it will not be subject to estate taxes. Conversely, the assets in a will do form part of the deceased’s estate and are subject to estate taxes.
The lawyers at Tailor Law understand that estate planning can be very stressful and are here to help clients ensure their assets are properly distributed according to their wishes.
If you are looking for more information about estate planning and which legal mechanisms are most suitable for your current situation, do not hesitate to contact us and our specialist Wills and Estates Lawyers can discuss your matter in more detail over a free consultation. You can reach our office at 905-366-0202 or contact us through our website here.
Nothing in this article should be considered or relied on as legal advice or opinion. This article only provides general information and should you require assistance, please contact us to book a free initial consultation.