Differences Between Wills and Trusts
What is a trust? What is a will? Is there a difference?
Everyone has assets, whether they are large ones like your house or car in your name, or the $10 bill in your pocket. No matter how big or small your assets, you are going to want to have an estate plan prepared by a professional estate planning attorney to have the final decision of where these belongings go once you are gone.
Most people have heard the terms “will” and “trust” but more than likely not everyone knows the difference between the two. When planning your estate, both are useful but serve very different purposes. It is important to be knowledgeable of the differences between the two legal documents as you plan your estate, to make sure your wishes are planned out correctly for after you pass.
A will is a legal document that directs who will receive your property after your death and it appoints a legal representative to carry out your wishes. A will:
- Gives instructions on how your assets and property will be distributed once you pass. Will require a statement to be written, signed and witnessed in agreement to your state's laws.
- Names beneficiaries, which are the people you want to benefit from your assets.
- Allows you to choose a person who will manage the distribution of all your assets (an executor), when you pass.
- Allows tour o choose a guardian for your children if you pass when they are still minors.
A trust is an authorized arrangement, that allows a third party called a “trustee”, to hold legal title to assets for another person, called a “beneficiary”. There are typically two types of beneficiaries. One beneficiary receives income from the trust during one’s lifetime. The other beneficiary receives whatever is left over after the first set of beneficiaries’ dies. Trusts typically can be set in many different ways and can specify exactly how and when the assets will pass to the chosen beneficiaries. Now what are the major differences between the two
When you die with a will, it is subject to probate proceedings. When a will goes through probate, it means that the court will oversee the supervision of the will and confirm that the will is valid, and that the property gets dispersed the way the deceased wished. The court will handle any disputes or challenges regarding the will. Trusts on the other hand are not subject to probate proceeds and avoid the costs that come with probate.
Wills become a public record at the time of your death, while trusts remain private.
A will must use a Power of Attorney to manage the assets while a trust will allow you as the grantor to manage your assets as long as you are able. With a trust you can also make provisions for a successor trustee to take over your place if you were to pass.
Usually it is less costly to prepare a will, but with the costs of probate it can make a will much more expensive. Typically, trusts cost more to prepare, fund and mange, but in the long term will avoid all the probate costs.
Since each individual’s estate planning needs vary, wills and trusts each have their disadvantages and advantages depending on your situation. It is best to consult an experienced estate-planning attorney, who can tell you how to best use a will and a trust in your specific estate plan.
If you think that estate planning in Michigan may be the right thing for you, or have a loved one that may soon be in need of an estate planner, contact Grand Rapids estate planning attorney, Sean Cox today. We provide services to the entire state of Michigan from our three convenient offices. Contact us today for a free consultation here.