There are several key differences between Wills and Trusts. Fundamentally, a Will is a legal document that spells out how a person wants his affairs to be handled and assets to be distributed after he dies. In contrast, a Trust is a fiduciary relationship in which a settlor gives a trustee the right to hold title to assets, including property, for the benefit of loved ones or a third party.
Wills allow a person to appoint an executor who will be responsible for controlling the estate during the probate process as well as during the distribution of assets. A Will also permits a person to arrange guardianship for minor children. Meanwhile, Trusts allow a person to appoint a trustee who will likewise manage the person’s estate after he dies.
Wills only take effect after a person’s death while Trusts can take effect during a person’s lifetime. Trusts can provide for the management and care of assets should a person become incapacitated, while Wills only become executable after a person dies. Trusts also enable trustees to manage assets on behalf of beneficiaries who are still unable to manage their own assets responsibly. Wills offer no such provision.
Maintaining privacy after death
Another key difference is that Wills are public documents while Trusts are not. Anyone can discover the details of a person’s estate if he writes a Will as probate is a public process administered by the courts. On the other hand, a Trust allows a person to maintain his family’s privacy after death. Furthermore, although court challenges to Wills and Trusts both occur, challenging the terms of a Trust is generally much harder to do than challenging that for a Will because the provisions laid out in a Trust are not made public.
In addition, a Will only covers any asset solely owned in a person’s name. It does not, for example, cover property co-owned with others who are listed as joint tenants such as a person’s wife or children. It also does not cover assets that are passed directly to loved ones via a beneficiary designation, such as in CPF funds in Singapore and life insurance policies.
In contrast, Trusts cover any asset that has been transferred to the Trust or where the Trust is the named beneficiary of an account or policy. Nonetheless, for Trusts, care has to be taken to ensure that assets have been properly transferred. If assets are not properly transferred to a Trust, it will not be covered by that Trust. The guidance of an estate planner is thus needed to ensure proper transfers of assets.
Another key difference is that Wills and Trusts differ in costs —not only when they are created, but also when they are used. This is likely to be a major consideration for those who are likely at the margin of whether to set up a Trust or to write a Will.
At the front-end of setting up a Will or Trust, Wills are certainly less expensive than Trusts. However, since Wills must go through probate, legal fees and court costs have to be factored in and things can get more costly if a Will is contested. So, even though a Trust may cost more upfront than a Will, the total costs once probate is factored in, can potentially make a Trust the less expensive option in the long run.
Importantly, estate planners will note that each person’s circumstances are different and they will work with their clients to decide whether a Will or a Trust is the best solution. Estate planners will act according to their clients’ needs, to reach the most affordable solution for the person and his loved ones, both now and in the future.
In the next blog post, we will look more deeply into the usefulness and value of Living Trusts.