What's the difference between a Will and a Trust? Are all Trusts the same?
Starting with definitions:
A Will (aka Last Will, aka Last Will and Testament) is a legal document that goes into effect at/after your death. All Wills do two things:
Name an Executor (aka Personal Representative) - this is the person who will be legally responsible for carrying out the instructions you left in the Will; and
Specify who is to receive your property/assets (and sometimes how).
If you have children under the age 18, you also name the person(s) you want the court to appoint as Legal Guardian(s) of your minor child(ren).
And, if you have children under the age 25(ish), you can use your Will to create a Testamentary Trust (more on this below) for the benefit of your children.
Wills are subject to the probate/estate court's oversight and the related fees, requirements, and timelines.
A Trust is a legal agreement about the management and distribution of property. One person (the Grantor) transfers property ownership to another person or organization (the Trustee) to manage assets for the benefit of a third person (the Beneficiary). Sometimes, the Grantor, Trustee, and Beneficiary are all the same person.
There are three main categories of trusts:
Living or Testamentary:
A Living Trust is active during the Grantor's lifetime and terminates at a designated time/event after the Grantor's death.
A Testamentary Trust is only active if (1) the Grantor's Will contains the relevant instructions, AND (2) the predetermined condition(s) applies (ex: the Grantor's children are under age 25). If the predetermined condition doesn't apply, the Testamentary Trust section of the Will is disregarded (ex: the children are all older than 25). Testamentary Trusts terminate when that predetermined condition no longer applies (ex: the youngest child reaches age 25).
Funded or Unfunded:
A Funded Trust has assets in it during the Grantor's lifetime.
An Unfunded Trust funds at the Grantor's death or other predetermined time/event.
Revocable or Irrevocable:
A Revocable Trust (aka a Revocable Living Trust) is a common estate planning document. It’s created during the Grantor’s lifetime, and they can change or revoke it.
A Grantor cannot change an Irrevocable Trust after creating it. A Testamentary Trust results from provisions in a Will, so it's Irrevocable by design since the Grantor has died. A Revocable Trust becomes Irrevocable after the Grantor's death. Other types of trust are irrevocable immediately. They are usually for a specific purpose, such as helping a disabled person, protecting assets, minimizing taxes for high net-worth grantors, and more. Keep reading about Irrevocable Trusts here and here.
Now, onto the main questions at hand:
(1) What's the difference between a Will and a Trust? There are a few main differences.
First and foremost, assets held in (owned by a) Trust are not subject to probate. So when a Grantor (person who made the Trust) dies, any after-death distributions from the Trust are not subject to the court-supervised process called probate.
And, as noted above:
The provisions of a Will only apply after the Testator (person who made the Will) dies; and
The provisions of a Trust might only apply after the Grantor (person who made the Trust) dies, but they can also apply during the Grantor's lifetime.
(2) Are all Trusts the same? No. As noted above, there are three main categories of Trusts, with significant differences.
(3) What else do you need to know? The Pros, Cons, and Myths about Revocable Living Trusts.
Disclaimer: this article was written by Attorney Heather Hazelwood of Hazelwood Law PLLC dba Ampersand Law. This article does not contain legal advice and is not a substitute for obtaining legal counsel. It is offered for general information purposes only.