The difference between a will and a trust is when they come into action. A will sets out your wishes for after your death, while a living revocable trust comes into effect as soon as it is created and funded. Trusts are frequently used in estate planning to facilitate the transfer of assets to heirs without the cost and publicity of the estate. They can also be used to maintain the confidentiality of different values of assets transferred to different heirs, as well as to ensure the privacy of family businesses and real estate held through entities not publicly identified with their owners.
The main function of wills and trusts is to name the beneficiaries of your property. In a will, you simply describe the property and list who should get it. When using a trust, you must do so and also transfer ownership to the trust. See Transfer of Ownership to Trust, below.
The will would specify the beneficiaries of any property or debt that is not in the trust, along with their preferences for who should take guardianship of their minor children. Trust transfers are usually faster and more efficient than will transfers, but they are usually more expensive to establish. A living trust is more expensive to establish than a typical will because it must be actively managed after its creation. However, a living trust is of no use unless it is funded with assets.
Making a will or trust, drafting a power of attorney and power of attorney for health care, and appointing a financial power of attorney are all ways to ensure that you or your spouse are carrying out plans for your estate. Some people think that using primarily a will rather than a living trust is more efficient in the long run, because it is easy to transfer assets into or out of your estate when they are owned by you in your name. Wealthy individuals and institutions often use irrevocable trusts to protect money from taxes or creditors, and irrevocable trusts are much more complicated than the revocable type. Whether a living trust is better for you than a will depends on whether the additional options it offers are worth it. Your decision to use a will or trust, or both, should depend on the nature and value of your assets, the seniority and capabilities of your heirs, tax planning considerations, and the complexity of your legacies.
Some lenders only review the living trust agreement, while others may have the grantor withdraw ownership from the trust during the refinance process. After your death, trust property is managed and distributed according to the terms of the trust. Only beneficiaries and, in some states, heirs, whether or not they are beneficiaries of the trust, have access to trust records. If a grantor transfers assets to an irrevocable trust for the benefit of third parties or purposes and has relinquished all control, rights and benefits with respect to assets and jurisdictions, courts generally consider the assets to be beyond the reach of the grantor's creditors. In a living trust, you can name your spouse, partner, child or other trusted person to have authority over the trust assets if you become incapacitated and unable to manage your own affairs. However, since the grantor retains control of the trust while it is alive, the assets are included in the grantor's taxable estate. The grantor appoints a trustee to administer those assets on behalf of the grantor or designated beneficiaries.
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