When it comes to estate planning, understanding the difference between a will and a trust is important. Both are essential tools to ensure your assets are distributed according to your wishes, but each option serves different purposes and offers unique benefits. Let's take a closer look at what sets a will and a trust apart.

What is a Will?

A will is a legal document outlining how your assets will be distributed after your death. It allows you to designate beneficiaries for your property, name guardians for your minor children, and appoint an executor to manage your estate. Here are some key points about wills that you should know about.

Effective Upon Death
A will only takes effect after you pass away. It has no legal authority while you are alive.

Probate Process
A will must go through probate, a legal process where a court validates the will and oversees the distribution of the estate. This process can be time-consuming and costly, depending on the complexity of the estate and your state’s laws.

Public Record
Because probate is a court process, a will becomes part of the public record, making the details of your estate accessible to the public.

Simplicity
A will is generally simpler and less expensive to create than a trust. It’s suitable for straightforward estate plans.

What is a Trust?

A trust is a legal contract which allows you to transfer your assets, before or after your death, to an account to be managed by yourself, if you’re still alive, or others after you have passed. A trust is used to provide more control over how and when assets are distributed, to protect assets from creditors, and to potentially save on estate taxes.¹

There are three main roles in a trust—trustor, trustee and beneficiary. One party, known as the trustor, is the person who creates the trust and places assets into it. The trustor can change, revoke or amend the trust’s terms. The trustor gives a second party, known as the trustee, the right to hold and manage property or assets for the benefit of a third party, known as the beneficiary. The trustee must act in the beneficiary’s best interest, remain impartial and distribute the assets according to the trust’s instructions.

Trusts come in various forms, but there are two main types—revocable trusts and irrevocable trusts.

Revocable Trusts
A revocable trust, also known as a living trust, can be altered or revoked by the trustor, while they’re still alive. They become irrevocable upon the trustor's death.

Irrevocable Trusts
An irrevocable trust cannot be changed or revoked once established. They offer significant tax advantages and asset protection, but require relinquishing control over the assets placed in the trust.

Here are some key points about trusts that you should know about.

Avoids Probate
A trust bypasses the probate process, allowing for the direct transfer of assets to beneficiaries. This can save time and money.

Effective During Lifetime and After Death
A trust can manage your assets during your lifetime (if you become incapacitated) and after your death, providing continuity and flexibility.

Privacy
Unlike a will, a trust is not part of the public record, offering greater privacy regarding the distribution of your assets.

Complexity and Cost
A trust is more complex and typically more expensive to set up and maintain than a will. They require ongoing management, especially if the trustor is serving as their own trustee.

Which is Right for You?

Deciding between a will and a trust depends on your personal circumstances and estate planning goals. If you have a straightforward estate and prefer a simple, cost-effective option, a will might work best for you. If your estate is more complex, a trust may be in your best interest.

In many cases, a comprehensive estate plan includes both a will and a trust. A will can cover any assets not included in the trust and address specific matters like guardianship for minor children, while a trust can handle the distribution of major assets. Understanding the difference between a will and a trust is fundamental to effective estate planning. While both serve the purpose of asset distribution, they offer different benefits and are suited to different needs.

As a Partner Colorado member, you can take advantage of our Estate Planning Services.² You can create your own will or trust to ensure your family is taken care of and your wishes are honored.

¹Consult with a qualified tax professional for specific tax advice. ²The use of any product and/or service is not intended to be a substitution for the advice of an attorney. Partner Colorado is not a law firm, and our representatives are not attorneys. No legal advice will be provided.