Whilst Wills and Trusts do have a lot of overlap, there are also several differences between the two. Ultimately, both are ways to say who will receive a persons assets. They just do it in different ways, and each has its own advantages and disadvantages.
A Will is a legal document that comes into effect from the point at which a person passes away. It cannot be implemented whilst alive.
A Trust can be created either in a Will or during a lifetime. If it is in a Will, it will only become operative at the time the administration of the estate is complete. If it is in a lifetime document, it can take effect immediately.
A Will is about the distribution of assets after your death, whereas a Trust is about the control of your assets and money. More specifically, control is handed over to a Trustee, who manages the asset on behalf of your beneficiary.
Wills
When creating a Will, there are multiple things to consider:
What assets are there to give: Common assets of a person’s estate include property, investments, jewellery, cars, etc. It is important in the early stages of preparing a will to clearly state which assets are intended to pass on.
Who will be the beneficiaries: Identifying who will be the beneficiaries is the most important part of the will. Clearly stating who are the beneficiaries is vital to the execution of a will.
Will there be any special circumstances: It is not uncommon for an asset to be held for a loved one in situ for a time before being passed to the beneficiary. This can often be due to their age or mental capacity. The process is completed via a third party who will take care of the asset before passing it on to the intended beneficiary.
Who is the executor: The appointment of the right executor can be the difference between wishes being followed to the letter or not at all. The executor is the person responsible for distributing the assets. An executor can be a loved one, a friend or somebody trusted who has a more thorough understanding of the law and the procedures to follow.
Trusts
A trust is also commonly used and is an effective estate planning method that can be put in place. They are often associated with the extremely wealthy but this is a misconception. A trust can be beneficial for anybody, no matter their net worth. The purpose of a trust is to leave assets behind for a loved one in a more controlled environment.
A trust allows a party to set aside their assets and funds for loved ones/friends/charities, while being freely able to state how, where, when, and why they wish for them to be distributed in that way. During the purpose, one or more persons will be appointed by the party providing the funds (the grantor) to the position of trustee.
The trustee is the person responsible for the assets held within the trust, to make sure that the wishes of the grantor are followed.
There are multiple different types of trust — depending on the situation and stipulations the grantor wishes. The most common are: asset protection, family, and property protection trusts.
One of the biggest reasons that there can be confusion between wills and trusts is that in some key areas — while still being distinct and having several differences — there is some overlap between the two. When it comes down to it, both are there to protect and benefit loved ones, it is just the method and circumstances of protection and the total package that differs.
Some of the key differences between the two is that wills don’t go into effect until you pass away, whereas a trust can go into effect immediately upon it being signed. Additionally, in wills, unlike trusts, arrangements can be made for children and pets, with the opportunity to also specify final arrangement wishes.
Conversely, trusts are more complicated fiduciary agreements, meaning that more detail can be added into any wishes, with more stipulations and conditions than in a basic will.
Which is better; a Will or a Trust?
Both wills and trusts have their own distinct advantages. They are both different in so many ways (despite having some similarities) that one can never be definitively seen as better than the other — they are both essential forms of estate planning, and both offer protection and peace of mind for you and your loved ones.
The pros of a will include:
- Considerations for children/pets can be included
- Avoid assets being distributed according to the laws of intestacy
- Avoid large inheritance tax implications
The pros of a trust are:
- Due to its status as a contract, terms of a trust are more private.
- Your heirs are able to avoid probate
- More control over what happens to your assets than a will
Ultimately you have the opportunity, as an adviser to your client, to have a full discussion with them about their future planning and wishes. Only through this conversation can you help them identify what a will can help fulfil and if a trust is also needed.
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