What's the difference between a Trust and a Will?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
Tayskiing
Posts: 48
Joined: Tue Oct 06, 2015 7:47 pm

What's the difference between a Trust and a Will?

Post by Tayskiing »

Hello Bogleheads!
I am wondering what the pros and cons are of having a trust vs a will. I have a will that I get for free because I'm in the military but the base legal office doesn't do trusts. I am not sure how much it would be to get a trust created and I'm not sure if it's worth me spending the money to get one. Lastly, is there a net worth amount that you recommend that you should get a trust made?

Thanks for any advice you may have!
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: What's the difference between a Trust and a Will?

Post by PFInterest »

it more has to do for avoiding probate at least from what i understand.
sport
Posts: 9838
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: What's the difference between a Trust and a Will?

Post by sport »

A will just specifies how your assets will be distributed after death. A trust actually owns the assets and can have any number of specifications including who will handle the assets if you are disabled.
User avatar
welloiledinvestor
Posts: 26
Joined: Sun Nov 16, 2014 6:44 pm

Re: What's the difference between a Trust and a Will?

Post by welloiledinvestor »

Will is just a pierce of paper of how you wish your assets distributed & wishes fulfilled.
In addition to a trust, you may also need a will. It depends on your finances and life situation, obviously. With a trust, it can keep things simple and can avoid the probate (therefore unnecessary taxes). With a trust, you can have tremendous amount of flexibility. You can spell out how you want the fund distributed etc. or if the funds can be used only for specific things (beneficiary's wedding, school expenses, or downpayment).

You have to think through carefully before you set up a trust. It comes into two main flavors: revocable & irrevocable.
In irrevocable trust, you turn over the assets/property/etc over to the trust. Trust is now the owner. This cannot be undone! This protects you against future creditors because you no longer own the assets. Revocable trusts allow you to make changes while you are still alive and the main trustee.

Your library should have a books on topic of "trust" usually in the section labeled "finance" or "personal finance."
I made the decision not to post any links. Google "Trust vs. will" to get more detailed comparison.
Educate yourself before you speak to a estate planning attorney. Depending on what state you live and your finances, it would be worthwhile to see a professional so that everything is setup properly. On top of will and trust, I would say something that people overlook and do not like to talk about is also Medical power of attorney.

It's always better to be prepared than sorry.
Swansea
Posts: 1016
Joined: Sat Feb 13, 2016 5:16 am

Re: What's the difference between a Trust and a Will?

Post by Swansea »

mespap wrote:Will is just a pierce of paper of how you wish your assets distributed & wishes fulfilled.
In addition to a trust, you may also need a will. It depends on your finances and life situation, obviously. With a trust, it can keep things simple and can avoid the probate (therefore unnecessary taxes). With a trust, you can have tremendous amount of flexibility. You can spell out how you want the fund distributed etc. or if the funds can be used only for specific things (beneficiary's wedding, school expenses, or downpayment).

You have to think through carefully before you set up a trust. It comes into two main flavors: revocable & irrevocable.
In irrevocable trust, you turn over the assets/property/etc over to the trust. Trust is now the owner. This cannot be undone! This protects you against future creditors because you no longer own the assets. Revocable trusts allow you to make changes while you are still alive and the main trustee.

Your library should have a books on topic of "trust" usually in the section labeled "finance" or "personal finance."
I made the decision not to post any links. Google "Trust vs. will" to get more detailed comparison.
Educate yourself before you speak to a estate planning attorney. Depending on what state you live and your finances, it would be worthwhile to see a professional so that everything is setup properly. On top of will and trust, I would say something that people overlook and do not like to talk about is also Medical power of attorney.

It's always better to be prepared than sorry.
+1 on Medical Power of Attorney!
Gill
Posts: 6960
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: What's the difference between a Trust and a Will?

Post by Gill »

After reviewing your earlier posts on other topics, it would certainly appear you have no need for a revocable living trust. Go with the free will from the military.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
TheJoker
Posts: 58
Joined: Mon Apr 17, 2017 12:21 pm
Location: Bellingham, Wa

Re: What's the difference between a Trust and a Will?

Post by TheJoker »

A will may take from 6 months to a year to probate depending what you own (real estate will prolong the probate process). A trust allows your successor trustee to have control of you assets immediately.

With a will, the court may appoint a third party to control/manage your home (real estate) and assets until at a cost to the estate the probate is settled. Why would you want that ?

TheJoker
Gill
Posts: 6960
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: What's the difference between a Trust and a Will?

Post by Gill »

TheJoker wrote:A will may take from 6 months to a year to probate depending what you own (real estate will prolong the probate process). A trust allows your successor trustee to have control of you assets immediately.

With a will, the court may appoint a third party to control/manage your home (real estate) and assets until at a cost to the estate the probate is settled. Why would you want that ?

TheJoker
[OT comment removed by moderator triceratop] Your experience clearly differs from mine in administering thousands of estates.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
User avatar
Miriam2
Posts: 3218
Joined: Fri Nov 14, 2014 11:51 am

Re: What's the difference between a Trust and a Will?

Post by Miriam2 »

A relevant article from our Boglehead Wiki on financial matters while in the military :happy

wiki/Military_finances

and our Wiki Index Wiki Index
John Bogle, "The Twelve Pillars of [Financial] Wisdom"- Pillar 6: The Eternal Triangle. Risk, return & cost are the 3 sides of the eternal triangle of investing and are too powerful to ignore.
User avatar
bengal22
Posts: 1918
Joined: Sat Dec 03, 2011 6:20 pm
Location: Ohio

Re: What's the difference between a Trust and a Will?

Post by bengal22 »

You can avoid probate with a will as well. My experience with a will was that it is sufficient and we were able to distribute most of the assets before probate was cleared. I think if one has his assets probably titled(POD and TOD) one can avoid the hassles of probate and excess taxes.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
Gill
Posts: 6960
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: What's the difference between a Trust and a Will?

Post by Gill »

bengal22 wrote:You can avoid probate with a will as well

.
A will must be probated to be valid. How do you avoid this?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
TheJoker
Posts: 58
Joined: Mon Apr 17, 2017 12:21 pm
Location: Bellingham, Wa

Re: What's the difference between a Trust and a Will?

Post by TheJoker »

I'm sorry Gill, I see that I have offended an attorney [OT comment removed by moderator triceratop]. Although it should be noted that you did not say that anything I noted was incorrect.

The Joker
User avatar
Peter Foley
Posts: 5205
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: What's the difference between a Trust and a Will?

Post by Peter Foley »

bsteiner is the expert on estate planning who posts on the forum. If he disagrees with any of the following, take his professional expertise over my "informed amateur" advice.

Usually one does not need a trust unless one or more of the following apply:
1. There is a need to control money after death (an heir you designate may not have the ability to do so responsibly or may not be inclined to follow your wishes).
2. There is a need to avoid probate. This need is relative. Do you need the secrecy? Do you own real estate in more than one state? In general, for many simple situations probate is not onerous.
3. There are tax advantages to having a trust. Federal Estate tax starts at about $5.5M. Some state have estate taxes on much lower amounts. If you are subject to the federal estate tax my opinion is you can afford the cost of getting professional advice and that advice will likely include measures for controlling estate taxes and the management of assets after death via a trust.

All of the above can be expanded upon and there are other less common reasons that I have not mentioned.

Equally as important as a will is having the correct, up to date beneficiary and contingent beneficiaries designations on all accounts and insurance policies.
User avatar
Peter Foley
Posts: 5205
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: What's the difference between a Trust and a Will?

Post by Peter Foley »

Gill - as I am sure you are aware, many couples have little in assets, own no real estate, and have account designations, beneficiary designations, and a will which allows everything to be passed to the spouse.

You post implies that all wills go through probate. That simply isn't true, especially with very small estates. State laws differ, however.
Gill
Posts: 6960
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: What's the difference between a Trust and a Will?

Post by Gill »

Peter Foley wrote:Gill - as I am sure you are aware, many couples have little in assets, own no real estate, and have account designations, beneficiary designations, and a will which allows everything to be passed to the spouse.

You post implies that all wills go through probate. That simply isn't true, especially with very small estates. State laws differ, however.
Of course all wills aren't probated. If there are no assets subject to probate the will can be ignored.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Gill
Posts: 6960
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: What's the difference between a Trust and a Will?

Post by Gill »

TheJoker wrote:I'm sorry Gill, I see that I have offended an attorney [OT comment removed by moderator triceratop]. Although it should be noted that you did not say that anything I noted was incorrect.

The Joker
Sorry, Joker, but I'm retired and long past the point of being paid for administering estates. Furthermore, I didn't practice as an attorney but worked in the corporate personal trust business.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
mouses
Posts: 4217
Joined: Sat Oct 24, 2015 12:24 am

Re: What's the difference between a Trust and a Will?

Post by mouses »

Gill wrote:
bengal22 wrote:You can avoid probate with a will as well

.
A will must be probated to be valid. How do you avoid this?
Gill
It's been awhile since I was my mother's executor/revocable living trust trustee, but her will had a provision that all her assets at the time of her death that weren't already in the trust went into the trust. So the probate court was not looking over our shoulders when I and the beneficiaries did stuff with the assets. Something or other went on with probate, but it was so tiny that I don't remember it. This was in RI.
User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: What's the difference between a Trust and a Will?

Post by triceratop »

I removed a few off-topic comments. Please stay on topic and discuss the matters the OP has inquired about. See the Forum rules (section General Etiquette):
Discussions should be conducted without fondness for dispute or desire for victory. - Benjamin Franklin

This is a moderated forum. We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones. Discussions are about issues, not people. If you disagree with an idea, go ahead and marshal all your forces against it. But do not confuse ideas with the person posting them. At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable. If you feel that someone has attacked you or otherwise violated the policies of this forum, do not respond in kind.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
Gill
Posts: 6960
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: What's the difference between a Trust and a Will?

Post by Gill »

Gill wrote:After reviewing your earlier posts on other topics, it would certainly appear you have no need for a revocable living trust. Go with the free will from the military.
Gill
Here is the only advice you need.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
User avatar
bengal22
Posts: 1918
Joined: Sat Dec 03, 2011 6:20 pm
Location: Ohio

Re: What's the difference between a Trust and a Will?

Post by bengal22 »

mouses wrote:
Gill wrote:
bengal22 wrote:You can avoid probate with a will as well

.
A will must be probated to be valid. How do you avoid this?
Gill
It's been awhile since I was my mother's executor/revocable living trust trustee, but her will had a provision that all her assets at the time of her death that weren't already in the trust went into the trust. So the probate court was not looking over our shoulders when I and the beneficiaries did stuff with the assets. Something or other went on with probate, but it was so tiny that I don't remember it. This was in RI.
My main point was that you can set all your assets up so that they transfer at death. A lot of this stuff like trust and wills are established to make the legal folk money. You are right, the will is really just your ticket to enter probate. It establishes the executor and the beneficiaries. But if everything is set up - house, car, funds - to transfer at death then you really do not need probate.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
User avatar
bengal22
Posts: 1918
Joined: Sat Dec 03, 2011 6:20 pm
Location: Ohio

Re: What's the difference between a Trust and a Will?

Post by bengal22 »

Gill wrote:
bengal22 wrote:You can avoid probate with a will as well

.
A will must be probated to be valid. How do you avoid this?
Gill
My main point was that you can set all your assets up so that they transfer at death. A lot of this stuff like trust and wills are established to make the legal folk money. You are right, the will is really just your ticket to enter probate. It establishes the executor and the beneficiaries. But if everything is set up - house, car, funds - to transfer at death then you really do not need probate.

Only the assets that are not auto transfered have to go through probate. In my FIL case, most of the assets did not go through probate - only his house and the car. It costs us about $250 court costs to go through probate.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
TBillT
Posts: 859
Joined: Sat Sep 17, 2011 1:43 pm

Re: What's the difference between a Trust and a Will?

Post by TBillT »

We are going through this now deciding probably on making a will for ourselves, but we just lost a loved one and they had a trust so we are going through that process too. Our loved one had a medical power of attorney which included us, and that was important.

One real-life question we were confused about was power of attorney for urgent financial matters such as paying medical bills during the illness. There was a power of attorney document but it was not clear to us when that became effective - apparently after the death. Basically we had to pay some of those bills out-of-pocket and submit to estate for coverage by insurance or estate.
cadreamer2015
Posts: 1028
Joined: Wed Apr 08, 2015 1:52 pm
Location: North County San Diego

Re: What's the difference between a Trust and a Will?

Post by cadreamer2015 »

I'm no lawyer, but my understanding is that Powers of Attorney expire when the grantor passes. That is they are valid while the grantor is alive, but cease to be valid once the grantor dies.

After the grantor dies it is my understanding that the executor/personal representative is responsible for making sure that bills are paid, etc. In the case of a trust, it would be the trustee who has that responsibility.
De gustibus non est disputandum
ponyboy
Posts: 1019
Joined: Fri Feb 06, 2015 10:39 am

Re: What's the difference between a Trust and a Will?

Post by ponyboy »

For a Will...the lawyer wins (huge fees.)

For a Trust...the lawyer loses (lower fees.)
Theoretical
Posts: 1514
Joined: Tue Aug 19, 2014 10:09 pm

Re: What's the difference between a Trust and a Will?

Post by Theoretical »

ponyboy wrote:For a Will...the lawyer wins (huge fees.)

For a Trust...the lawyer loses (lower fees.)
This is very offbase. In fact, it's often the opposite, and most states don't have provisions that automatically add assets to the living trust that got left out. If that happens, you still get probate. In addition, if your demise is due to another's act, say medical malpractice or drunk driver, then a living trust won't matter because it'll be your estate raising the wrongful death claims...which requires probate.

It's a state-by-state thing. If you're in California, many people need a living trust because Probate is statutorily expensive and complex. In a place like Texas, a living trust is only needed if there's some non-probate justification like out-of-state property, known looming incapacity (one of the testators has early Alzheimer's or significant physical disabilities), or you're designing the trusts in such a way that there's complex, specific terms around distributions. Say for example, something where each beneficiary, upon reaching 23 or graduating college, may receive up to $100K to finance a down payment of a house. Generic health, maintenance, education and support terms don't tell a snooping will-reader anything beyond what 500 other wills do. In those situations, a standalone trust can make sense.

In addition, a Will may (and should!) contain at least a contingent trust in case a minor or incapacitated person inherits property. The lawyer definitely does NOT lose if there's no trust in place for minor kids or grandkids inheriting. In fact, he/she ends up making a bundle of money administering a guardianship/conservatorship over the assets. These trusts can be every bit as complex as those in living trusts, though of course the terms are less private.

Moreover, every reputable attorney will at least draft a pourover will to ensure that if the trust doesn't hold all of the assets, that everything will at least go into it the long way.
Post Reply