When your planning for the orderly distribution of your estate, you’ll soon discover that there are a number of options available, including lifetime gifting and re-titling certain assets (which can help avoid probate). In most situations, you’ll want to prepare and execute some type of dispositive documents, such as a will or trust. But you may not fully understand the differences between these two estate planning tools.
A will is a legally enforceable document that provides direction to your survivors. It only goes into effect upon your death and any gifts made under a will are not passed until after your death. A will typically focuses on the payment of final debts and expenses and the transfer of property, but can also identify who will care for minor children (or for any adults for whom you served as legal guardian). The will names an executor (also known as an administrator or personal representative), who is charged with taking the will through the probate process. In most instances, it will be necessary to file the will with the probate court, so that assets can be distributed and re-titled, if necessary.
A trust, on the other hand, may go into effect during your lifetime (an “inter vivos” trust) or upon your death (a “testamentary” trust). A trust is a separate legal entity, with the power to own property. Accordingly, if you create an inter vivos trust and transfer property to that trust while you are still living, you no longer own the property. As a result, when you die, there’s no need to use the probate court to transfer any assets in the trust (because you didn’t own them). If you use an inter vivos trust, then, you can avoid probate, which can be time-consuming and expensive.
There’s also generally a difference in the cost of a will vs. the cost of a trust. Because a will is typically much simpler, it usually involves less upfront cost. A trust customarily includes language identifying how property can be used, transferred, bought or sold, so usually involves greater cost.
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