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The Diffference Between a Will & a Trust

In the world of estate planning, wills and trusts often take center stage. They’re kind of like siblings (without all the fighting). Both are legal tools that transfer your stuff to those you love.

The main difference is that one takes over while you’re still alive and the other goes into effect after you die.

There are a few more important distinctions you should know about. Let’s go over each one, starting with the basics so you can decide what’s best for you.

What Is a Will?

A will is a legal document that explains what you want to happen when you die—and puts it all in writing. It outlines things like who you want to get your stuff, your money, and guardianship of your kids or pets.

There are many different types of wills. But for most people, a simple will is enough. In fact, for 95% of people, a will is all you need to establish a rock-solid estate plan—one that protects your family if something ever happens to you (and it will, eventually at least).

What Is a Trust?

Trusts come in lots of different forms—close to a dozen, actually. So let’s focus on the most common ones and what they do.

Living Trust

A living trust lets you transfer your assets to loved ones quickly and easily. It’s “living” because it’s in effect while you’re alive, as opposed to a will, which only kicks into gear after you’re gone. You can put things like bank or savings accounts, cars, real estate, art, jewelry and even intellectual property (like your novel manuscript) in a living trust. But even though those assets are named inside your trust, other people can’t access them until after your death.

Revocable and Irrevocable Trusts

A revocable trust just means you can change the terms of the trust. How about an irrevocable trust? Yep, you guessed it. You can’t change the terms. For example, in an irrevocable trust, once you name the beneficiaries for your property, the names of those beneficiaries are set in stone and can’t be changed.

You can make most other kinds of trusts revocable or irrevocable. Revocable trusts are the most common, but even making changes to a revocable trust takes a lot of paperwork. Fun fact: Revocable trusts magically transform into irrevocable trusts after your death.

Charitable Trust

As the name suggests, a charitable trust is used to give away part of your estate to a charity. You can create a charitable lead trust (CLT) or a charitable remainder trust (CRT). The CLT is simple: You designate particular assets to go toward your favorite charity (like Agatha’s Donkey Shelter, for example). With a CRT, you put certain assets into the trust that you or your beneficiaries will get income from, and the rest of your assets go to one or more charities.

Testamentary Trust

A testamentary trust is one you create using a will. So in your will, you basically say, “When I die, this and this will be placed into a trust for this person.” The kind of trust (like charitable or special needs) you create is up to you.

Spendthrift Trust

Some people just don’t know how to handle money. If you’re looking at your loved ones and thinking, Yep—that’s them, a spendthrift trust might be a good option for you. This kind of trust allows you to control when and how your beneficiaries get your stuff.

Special Needs Trust

Using this trust, you can make sure any dependents with special needs will be supported and cared for after you’re gone.

Life Insurance Trust

Life insurance death benefits aren’t usually taxable. But if you’re super wealthy and your death benefit will cause your estate to be worth more than $12.92 million for a single person, those benefits will become subject to the federal estate tax.

So, a life insurance trust includes your insurance policy and can protect your death benefit from estate taxes when you pass away.

These are just some of the different types of trusts. They can get even more specialized depending on your needs. As you can see, trusts tend to be geared toward people with complex estates.

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