When a hurricane is expected to hit, responsible homeowners are familiar with the drill: stock up on supplies like gas, first-aid kits, flashlights, and tools, along with non-perishable provisions such as bottled water, canned soups, dry cereals, and so on. This prepares you for the aftermath of the storm in the short term, whereas shutters and impact-resistant windows and doors are meant to last and provide protection--certainly during the current hurricane--but also for many years to come. The idea is to protect your loved ones now and in the future. A will and trust serve a similar purpose when it comes to creating financial security. Your estate plan depends on both, and while the terms “will” and “trust” are often used in the same sentence, there are important differences.
What is a Will and What is a Trust?A will documents how you want to distribute your property and the care of any minor children and is active only after you die. A trust establishes which beneficiaries will receive your assets. A trust goes into effect as soon as it's signed, and it can be used to begin distributing property before death, at death, or afterward. The commonality is that you may change your will or your revocable trust until the time of your death, as long as you remain mentally competent.
Revocable and Irrevocable Trusts
The most common type of trust, revocable, gives the grantor or trustmaker full control. With this type of trust, the grantor, trustee, and beneficiary are all the same person and can change the terms of the trust at any point, provided they are mentally fit. A revocable trust can name additional beneficiaries, including who will inherit from the trust following the grantor’s death.
An irrevocable trust is essentially ironclad, meaning it cannot be undone. A trustee, not the grantor, is selected to control the trust’s assets and property.
How is Property Covered?
A will designates who will inherit your property after death, and it names a legal representative to carry out your wishes. A will can also control how your property is disseminated, including interests you might have in properties, including tenancy in common where two or more people own property or land. A trust controls any property that funds it because the grantor moves assets into the trust once it’s been created. Unlike a will, these assets can include life insurance policies and tenancy-in-common interests.
Wills Require Probate and Trusts Don’t
Though your will names beneficiaries, they don’t automatically receive your assets when you die. It must go through probate to legally transfer to them, and not only can probate be a long court process, it can be expensive, requiring hiring an attorney. Since the will must be filed with the court, it is a matter of public record, which means it could be accessed by anyone.
However, having both a will and a trust--revocable or irrevocable--avoids probate because the terms of a trust dictate how property and assets move into a living person’s ownership. The terms of the trust remain private.
Weather the Storm
Despite the rough weather on the way, people who’ve stocked up on supplies and hurricane-proofed their home often feel prepared to weather the storm and look forward to the future. A carefully prepared will and trust sets up your financial legacy and protects those whom you care about most.