What Is the Difference Between a Will and a Trust?

Estate planning is an essential step when you want to protect your assets and ensure financial comfort for your loved ones after you die. However, deciding the best way to do this could be complicated, especially when multiple options are available. Since most people feel that they have to choose between trust vs will as their primary option to have some control over how they distribute assets, understanding the differences and similarities between these two documents is vitally important.

In this post, we’ll explain what trusts and wills are, their benefits and drawbacks, if any of these documents are subject to federal estate tax, and what you need to consider before setting one up.

What Is a Will?

A last will and testament is a legal and official document that indicates how your properties and assets will be distributed after your death and helps avoid disputes between your family members.

You can use a will to:

• Leave assets to those who could be otherwise excluded by the law. It determines how your properties will be distributed after you die.
• If you have dependents left behind, you may leave instructions for their care.
• Designate a legal guardian or conservator for your minor children or dependents.
• Nominate an executor who is responsible for carrying out the instructions and wishes outlined in the testament.
  
• Leave your whole inheritance to just one beneficiary or assign various assets to multiple beneficiaries.
• Gift money or assets to your favorite charity or an institution or organization (other than a charity).

Your will can be as generalized or as detailed as you wish.

You may include in your will just a part of the assets you own or all of them, from the most minor pieces, just as sentimental jewelry or keepsakes, to prized possessions such as paintings or art to significant assets such as your home or real estate.  

After creating your will, you can modify it using amendments called codicils, or you may completely replace it with a new last will and testament.

After your death, your estate will go through probate, which is the process of validating the will. The probate court appoints the executor you nominated in the will to act on behalf of your estate. The assets included in your estate may be distributed to the designated beneficiaries only after the probate process.   

Wills typically don’t include jointly owned assets, as they pass directly to the surviving co-owner(s) when one of the owners dies. Even if the state laws may differ, the testator must typically sign the will in the presence of two witnesses to become legally binding and effective.

What Is a Living Trust?

A trust is a legal arrangement where an individual (also known as a grantor, trustor, or settlor) places their assets in the care of a third party (trustee) for the benefit of another person (beneficiaries).

When creating a trust, the document will typically include details about:

• The purpose of the trust.
• Type of assets that could be held in the trust.
• The trustee’s responsibilities and duties.
• The designated beneficiaries who will receive the trust’s assets when the settlor passes away.

As the next step, the testator must fund the trust and can do this by transferring the assets into the trust’s account.

Typically, the assets that could be included in a trust are:

• Financial accounts (checking and saving bank accounts, investment accounts, retirement accounts, annuities, certificates of deposit, shareholders stock from closely held corporations.
• Business interest.
• Real estate.
• Life insurance policies.
• Collectible vehicles.
• Mineral rights.
• Safe deposit boxes.
• Valuable personal property, such as art, jewelry, furniture, and collectibles.

The trustor could assign himself as the trustee or designate someone else to administer the trust.

Types of trust

Even if trusts could have different forms, each of them with its own benefits, here are the most common ones you should be aware of:

Revocable trusts

Can be changed or canceled by the trustor during their life, allowing them to maintain control over the trust and their assets. The settlor can also add or remove assets and change beneficiaries if they change their mind.

Upon the grantor’s death, the revocable trusts become irrevocable trusts.

Irrevocable trusts

It cannot be amended, modified, or terminated without the trust’s beneficiary’s permission or by a court’s order. Once the grantor adds assets to the trust, he gives up control over them and can access them only if they meet certain conditions.

Once the trustor loses control over their asses, they are not considered part of their estate anymore: as a result, the assets are protected from creditors’ claims and are excluded from the estate taxes.

Special needs trust

It is a legal arrangement that allows people with disabilities to receive financial support from a trust for a particular purpose without affecting their rights and eligibility for public assistance and federal support.

Charitable trust

This is an irrevocable trust and is created to support different charities and, if applicable, to offer tax benefits to the grantor.

Testamentary trust

This is a special trust created as a part of the last will and testament, where the trustor transfers assets into the trust upon their death. A testamentary trust can have minors as beneficiaries, and the assets will be paid out to them only at a certain age.

In their will, the settlor may create a testamentary trust for each beneficiary and split the inheritance equally or create a family trust that can be distributed according to each beneficiary’s needs.

However, you should know that even if it might reduce estate tax liabilities, a testamentary trust doesn’t avoid probate.   

Advantages and Disadvantages of a Will

Pros:

• It is less expensive than a trust during the planning time.
• You can amend it without re-titling your assets.
• Uses simple language.
  
• A will can be updated or changed as long as you are alive and sound of mind, allowing you to change its terms and conditions as your circumstances change.
• You can use a last will to appoint censorship and guardianship for your minor children, dependents, and pets, ensuring they are adequately cared for by someone you trust.
• You may specify your wishes for your funerals.
• You may designate a person you trust (called “executor”) to handle your estate and distribute your estate assets according to your wishes expressed in the will.
• You may leave specific gifts to your friends and family members.
• May leave money and assets for your favorite charity.
• Anyone over the age of 18 can make a will as long as they have mental capacity.
• You can also use the will to disinherit individuals you don’t want to receive your money and real estate property.

Cons:

• Must go through probate before the surviving spouse and other beneficiaries receive their bequests.
• Once the probate process starts, the testament becomes a matter of public records, which means a lack of privacy for both the late person’s surviving family members, beneficiaries, and the estate itself.
• It doesn’t provide any protection against financial predators and creditors.
• If you own properties in multiple states, the probate must be complete in all states.
• Delay in estate assets’ distribution – in Georgia, it typically takes between twelve and eighteen months to settle an estate.
• The will can be contested, creating potential disputes between beneficiaries and family members of the deceased and adding additional steps to the probate process.
• Beneficiaries receive their share of the inheritance only after the payment of the outstanding debts, estate taxes, attorney’s fees, and other estate expenses, resulting in a smaller amount of money than initially expected.
• A last will applies only to probate assets, which means you can’t include financial accounts and insurance policies with beneficiary designation and real estate or land titled with other parties as JTWROS or real estate with joint ownership.

Advantages and Disadvantages of a Trust

Pros:

• Prevents your family members from going through the probate court to distribute your inheritance. As a result, assets included in a trust could often be distributed more quickly and efficiently than those contained in a will.  
• Ensures your final wishes and financial information remain private.
• Manages the assets if you become mentally and physically incapacitated.
• It allows you to avoid conservatorship, as you can create different trusts for different beneficiaries, and you set in the trust documents the age when beneficiaries can receive the trust funds.
• If it’s an irrevocable trust, it protects the assets you added to the trust against the creditors’ claims.
• The irrevocable trusts can diminish your estate taxes.
• It allows you to include a “pour-over-will,” a document that ensures that any remaining assets will be automatically transferred into the trust after you pass away. Pour-over wills can be typically used with both irrevocable and revocable trusts.
• You have extended control over the trust’s assets and set conditions for a beneficiary’s entitlement. This could be useful, especially when you have concerns about the beneficiary’s ability to manage their inheritance if they are still minors or if you would want to name beneficiaries who do not yet exist – such as any future grandchildren.

Cons:

• If you include a “pour-over-will” into your trust, it must still go through the probate process, even if, ultimately, this document can ensure the assets will be distributed to the intended beneficiaries.
• Trusts are more complex documents that often require professional help, meaning higher setup fees. In addition, you also have to pay recurring costs such as the trustee’s fees, preparation tax fees, and legal fees; in the long run, maintaining a trust could be expensive.
• In the case of irrevocable trusts, you can’t amend or change the documents after you create them.
• The assets aren’t automatically included in a trust; you need to take additional steps to transfer them into the trust.
• Trusts must adhere to a strict legal framework; typically, they are more complex, might be hard to understand, and require meticulous record-keeping.
• The assets included in revocable trusts are not protected against creditor claims, as they are still on the settlor’s property.
• Potential conflicts occur between the family members or beneficiaries, especially when they consider the trusts unfair or when the trustee is not acting in the best interest of all trust beneficiaries.

What Is the Difference Between a Will and a Trust?

Trust vs Will in Georgia

In the state of Georgia, you do not need to choose a trust vs will; you can have both, the choice between the two depending on factors like privacy preferences, estate size, and the need to avoid probate.

We advise you to talk to an experienced estate planning attorney to guide you through this process.

Who Should Choose a Will?

When thinking about trust vs. will and deciding which type of document you should have to distribute the inheritance to your beneficiaries depends on your estate planning goals and some other factors, such as:

• The size and complexity of your estate.
• Your estate planning budget.
• Whether you’d want to access and control your assets before you pass away.
• The complexity of your distribution wishes (the type of assets you’ll divide and the number of your beneficiaries).

For most people, making a will would be typically the fastest, easiest, and most affordable way to plan and distribute their inheritance.

A will might be suitable for you if:

• You intend to have an affordable and straightforward estate planning option.
• You need to keep ownership of your assets and property during your lifetime.
• You want to carry out an estate plan quickly and without hassle.

Who Should Choose a Trust?

A trust may be a better option for those people who:

• Want to maintain their assets and properties private.
• Have multiple real estate properties.
• Have significant assets.
• Want to protect their finances against creditors’ claims and lawsuits.
• Want more control over the distribution of their assets upon their death.

Trust vs Will Taxes

Georgia doesn’t have inheritance taxes anymore; however, for some people, the inheritance and estate taxes are the same.

The estate tax is not paid by the person inheriting assets but by the estate before any assets are distributed to beneficiaries or heirs.

In contrast, the tax treatment for trusts is categorized depending on the type of  the trust:

• For revocable trusts (also known as “grantor trusts”) – the settlor still owns the assets until he dies. Therefore, the trust’s income is treated as the grantor’s own income for tax purposes.
• Irrevocable trusts are considered distinct taxable entities from the grantor; as a result, they’ll be subject to both state and federal income taxes.   
• Property tax – properties held within a trust might be subject to different property tax treatment, contingent on the specific type of trust and Georgia’s property tax laws.
• Gift tax – when transferring assets into an irrevocable trust, you should know that this act might be considered a taxable gift under federal gift tax rules. However, there are different rules and strategies you could use to avoid or diminish them.

To fully understand the taxes that could apply to your trust vs will, we advise you to consult an experienced attorney who could provide tailored insights into the trust tax implications specific to your situation.

Trust vs Will Cost

The average cost of making a will depends on multiple factors, such as if you want to write it yourself using online templates or hiring an estate lawyer. Other factors that could influence the will’s cost are the complexity of the estate and the number of beneficiaries.

As with a will, the average cost of creating a trust can vary widely. The cost depends on several factors, such as, for example, the complexity of the trust, the number of assets included, and whether or not you hire an estate planning attorney.

For both documents, the average cost ranges somewhere between a few hundred and a few thousand dollars.

Is it Possible to Have a Will and a Trust?

In short, yes. In Georgia, you can have both a will and a trust.

Even if it makes sense for many people to have just one of them, trusts and last testaments are both estate planning tools that complement each other.

A last will and testament ensures that any asset not specifically transferred into the trust will be distributed to the nominated beneficiaries and not according to intestacy law. If you have minor children or dependents, you can also use the will to name a guardian for them, something you can’t do with a trust.

On the other side, without trust, your loved ones would need court approval to manage your assets if you become incapacitated during your lifetime. They will also have to undergo a long and expensive probate process to receive their inheritance.

However, before deciding between a trust vs will, we advise you to talk to an experienced attorney about your options.

Bottom Line

In conclusion, while most people should have a will, not everyone needs a trust. If you have a more significant estate, a trust could be a great tool to distribute your assets after you die, but it could be unsuitable when you have just a small estate.

When you need to learn more about trust vs will, schedule a consultation or call us at (770) 796-4685 to speak with one of our team members about your specific situation. Our experienced probate attorneys are always here to help you.

Disclaimer: The information above is provided for general information only and should not be considered legal advice. Our probate attorneys provide legal advice to our clients after talking about the specific circumstances of the client’s situation. Our law firm cannot give you legal advice unless we understand your situation by talking with you. Please contact our law office to receive specific information about your situation.