Wills vs. Trusts: What Is the Difference?

When planning for the future and making sure that your assets are passed on to your loved ones after you pass away, you’ll encounter two key legal tools: wills and trusts. 

At Moore Legal LLC in St. Louis, Missouri, we know that both of these documents are vital estate planning instruments, but they serve different purposes and offer distinct benefits. For clients, it can sometimes be challenging to determine the differences between these two essential pieces.

That said, here we'll explore the differences between a will and a trust, their advantages and disadvantages, how they work, and which one may be best for your particular situation.

What Is a Will?

A will is a legal document that outlines how your assets should be distributed after your death. It also provides instructions for appointing guardians for minor children, naming an executor to manage your estate, and specifying how debts and taxes should be handled. 

Now that we have a basic understanding of what a will is, let's explore the key functions it serves in making sure your wishes are carried out after your death.

The Function of a Will

A will serves several important functions in your estate plan, each designed to make sure that your assets are distributed according to your wishes after your passing, and that your loved ones are taken care of in a manner that reflects your desires. These function include:

• Asset distribution: The primary function of a will is to designate who'll receive your assets. This includes both tangible property, such as real estate, cars, and jewelry, and intangible property like bank accounts and investments.

• Executor appointment: The will names an executor, who is responsible for administering the estate, making sure that debts are paid, and that assets are distributed according to your wishes.

• Guardian appointment: For parents with minor children, a will allows you to name a guardian who will take responsibility for raising your children if something happens to you.

• Debt and tax instructions: A will can outline how your debts and taxes should be handled after your death, making sure that everything is settled before your estate is distributed.

After you pass away, the will goes through a legal process called probate. Probate is the court-supervised procedure by which your estate is validated, debts are paid, and assets are distributed according to the will's instructions. 

The probate process can be time-consuming and costly, often taking several months or even years. Additionally, probate is a public process, which means anyone can access your will and view the details of your estate. Of course, there are pros and cons to both wills and trusts.

The Pros and Cons of a Will

There are several key advantages to having a will, making it an essential tool for anyone looking to make sure their wishes are clearly communicated and legally binding after their death. Some of these benefits include:

• Simple and direct: A will is a relatively straightforward document that can be created with the help of an attorney or using online services.

• Appointment of guardianship: A will is the only way to formally name guardians for your minor children.

• Control: You have direct control over how your assets are distributed after your death, and you can make specific requests for personal items or charitable donations.

While a will offers important benefits, it also comes with certain drawbacks that may impact the efficiency, privacy, and cost of managing your estate after your death. Some of these cons include:

• Probate process: A will must go through probate, which can be time-consuming, expensive, and public.

• Limited privacy: Once the will is filed in probate, it becomes a public record, meaning that anyone can view the contents.

• No protection during life: A will only takes effect after your death, meaning it provides no protection in the event of incapacity or disability.

Wills are great to have and make the process of distributing your assets after your passing easier. However, if you don't think a will offers as much protection as you'd like, it may be worth considering a trust.

What Is a Trust?

A trust is a legal arrangement where one party, known as the trustee, holds and manages assets on behalf of another party, called the beneficiary. 

There are many different types of trusts, but the most common ones used in estate planning are revocable living trusts and irrevocable trusts. Trusts are designed to avoid probate, maintain privacy, and provide more control over asset distribution.

The Function of a Trust

Trusts can serve many different functions, depending on the type of trust you create. Some of the most common purposes of a trust include:

• Avoiding probate: One of the most significant advantages of a trust is that it avoids probate. Assets placed in a trust aren't subject to probate, which means they can be distributed directly to beneficiaries without the involvement of a court.

• Asset protection: Certain types of trusts, such as irrevocable trusts, can provide asset protection from creditors and lawsuits. Once assets are transferred into an irrevocable trust, they no longer belong to the grantor, making them protected from creditors.

• Privacy: Unlike a will, which becomes public during probate, a trust remains private. The terms and assets of the trust aren't disclosed to the public.

• Incapacity planning: A trust allows for the management of your assets in the event that you become incapacitated. The trustee can step in and manage your finances without the need for a court-appointed guardian or conservator.

A trust works by transferring your assets into the control of a trustee. The trustee is responsible for managing the assets according to the terms set forth in the trust agreement. Trusts can be either revocable or irrevocable:

• Revocable trust: A revocable living trust allows the grantor to retain control over the assets and change the terms of the trust at any time while they're alive. Upon the grantor's death, the assets in the trust are distributed to the beneficiaries without going through probate.

• Irrevocable trust: An irrevocable trust, once established, can't be altered or revoked by the grantor. The assets in an irrevocable trust are no longer considered part of the grantor’s estate, which can provide tax benefits and asset protection.

When you pass away, the trustee will distribute your assets according to the terms of the trust, without the need for probate. This process is typically faster, cheaper, and more private than probate.

The Pros and Cons of a Trust

A trust offers a range of advantages that can provide greater control, privacy, and flexibility in managing your estate and making sure that your assets are distributed according to your wishes. Some of the key benefits of a trust include:

• Avoids probate: A trust avoids the lengthy and expensive probate process, allowing for quicker asset distribution.

• Privacy: The details of a trust aren't made public, so your estate plan remains private.

• Incapacity protection: If you become incapacitated, a trust helps to make sure that your assets will be managed according to your wishes without the need for a court-appointed guardian or conservator.

• Flexibility: Trusts can be highly customizable to meet specific needs, such as providing for special needs children or making charitable donations.

Despite the many benefits a trust offers, like a will, there are also some potential downsides, including higher costs, intricacy in setup, and the ongoing management required to make sure it functions as intended.

• Difficulty and cost: Setting up a trust can be more complicated and expensive than creating a will, especially if you require a specific type of trust.

• Ongoing management: If you establish a trust, you must transfer your assets into the trust, and the trust needs to be managed over time. This can be a burden if you don’t have a trusted individual to serve as trustee.

• Irrevocable trust limitations: Once you place assets in an irrevocable trust, you lose control over them. This can be a disadvantage if your circumstances change, and you need access to those assets.

Now that we’ve explored the basics of wills and trusts, let’s break down the key differences between the two.

Key Differences Between Wills and Trusts

Understanding the key differences between wills and trusts is crucial in determining which estate planning tool best suits your needs, as each offers distinct advantages and addresses different aspects of asset management and distribution.

• Probate: A will must go through the probate process, whereas a trust doesn't. This means that assets held in a trust can be distributed without court involvement, leading to a faster and more private distribution process.

• Privacy: A will becomes public once it enters probate, whereas a trust remains private. If privacy is a concern, a trust is the better option.

• Control over assets: A will only takes effect after you pass away, while a trust can offer more control and protection during your lifetime. For example, a trust allows you to appoint a trustee to manage your assets if you become incapacitated, whereas a will doesn't.

• Intricacy: Wills are generally simpler and easier to create than trusts. Trusts can be more complicated, especially if they involve special provisions or assets that need to be carefully managed.

• Cost: A will is typically less expensive to create than a trust. However, if you have a large estate or complicated assets, a trust may save you money in the long run by avoiding probate and other fees.

• Incapacity planning: Wills don't address the issue of incapacity, while a trust can provide a clear plan for managing your assets if you become unable to make decisions for yourself.

Both wills and trusts are essential tools for estate planning, each with its unique advantages. Here’s when to choose one over the other.

When to Choose a Will and When to Choose a Trust

The decision to create a will or a trust largely depends on your personal circumstances, goals, and the intricacy of your estate. Below are some factors to consider when deciding between a will and a trust:

• For simple estates: If you have a small estate, few assets, and no complicated wishes for distribution, a will may be sufficient for your needs. Wills are typically appropriate for individuals who don’t want to spend a lot of money on estate planning but still want to make sure that their assets are distributed according to their wishes.

• For larger or more complicated estates: If you have a large estate, complicated assets, or concerns about privacy, a trust may be a better choice. Trusts are ideal for individuals who want to avoid probate, maintain privacy, and make sure that their estate is handled efficiently.

• For families with minor children: If you have minor children and want to make sure that they're cared for by the person you designate, a will is likely the best way to name a guardian. A trust can be used to manage assets for minor children, but it doesn't replace the need for a guardian.

• For individuals with incapacity concerns: If you want to make sure that someone can manage your assets if you become incapacitated, a trust is essential. Trusts can specify who will step in to handle your finances if you're unable to do so yourself.

Understanding the differences between wills and trusts can help you make an informed decision about which estate planning tool is right for your situation. In many cases, individuals use both a will and a trust to make sure that their estate plan covers all aspects of their financial and personal wishes.

Contact an Estate Planning Attorney Today

If you're looking to get started with estate planning, don't hesitate to contact an experienced estate planning attorney at Moore Legal LLC. Attorney Ashley Moore has years of experience serving clients throughout St. Louis, St. Louis County, St. Charles County, and Jefferson County, Missouri. Contact us today to schedule a consultation.