Distinct differences exist between wills and trusts.

Estate planning typically involves creating a will-based or a revocable living trust-based plan.

Both have been used for generations to transfer assets to loved ones successfully.

While most people have likely heard both terms, they still may be confused about the differences between wills and trusts.

According to a recent Forbes article titled "Which Is Best For Your Estate Plan: A Will Or Trust?" understanding the difference between the two is the first step in deciding the best option for you and your estate planning goals.

Wills and trusts are both estate planning tools but are distinctive in their nature, similar to how shoes can be different but ultimately serve the same purpose.

The most fundamental difference involves how assets are transferred to heirs.

First teaching point?

Both "roads" ultimately lead to the same Rome, so to speak.

However, the paths taken to transfer assets to heirs have some significant differences.

With a last will and testament, the property must be distributed through probate proceedings.

With a revocable living trust (RLT), anything titled to the RLT can be distributed directly to heirs by the trustee according to the terms of the RLT itself.

As such, a RLT avoids probate.

Although probate can be beneficial and even the best option for many individuals, there are some disadvantages.

One primary concern for many is the additional expense and time of probate.

The process can be lengthy and frustrating because probate requires an inventory of liabilities and assets to be compiled and submitted to the court with the last will.

This is especially true if the individual who died was disorganized or just led a highly complex life asset-wise.

Yikes!

Although heirs may be waiting to receive their inheritances, they cannot assume ownership until the probate court approves the distributions.

The expenses and fees for probate can be costly.

States vary on how expensive and slow the process of settling an estate is in their jurisdictions.

Kansas, for example, is known for its "reasonable" executor and attorney fees.

Missouri, on the other hand, not so much.

Why?

Missouri probate statutes provide a "default" sliding percentage scale regarding "minimum" probate fees paid to the executor and the attorney.

Finally, probate is a matter of public record, unlike trust administration in most states.

This means the last will is open to the public once filed with the probate court.

Many celebrities and wealthy individuals prefer to protect their privacy as much as possible, even though many celebrity estates tend to be fodder for tabloid reading.

Despite the appeal of privacy from RLTs, some individuals may benefit from the public nature of probate.

Why?

It can provide greater checks and balances when things are transparent and overseen by an independent judge (backed by a Glock-toting bailiff).

The court and potential heirs can see the estate planning documents and inventories presented to the courts.

This can help protect against someone exerting undue influence and coercing another into changing the terms of their last will.

Not surprisingly, last wills are more commonly challenged than RLTs due to their public nature.

Thankfully, the guidelines and process for contesting a last will are well-established.

Another benefit of will-based planning is that it is often simpler than RLTs to create.

With a last will, the maker of the will (i.e., testator, if male, and testatrix, if female) does not have to change property ownership until the assets are distributed when they die.

Therefore, absent coordinating beneficiary designations with the estate plan (think life insurance and retirement funds), will-based planning is a perfect "starter estate plan" for young couples who will have minor children for the foreseeable future.

In contrast, RLTs require assets to be retitled to the RLT to make the entity the legal owner of the property.

If the RLT is not funded, it will not function according to its design.

Like an auto without fuel (fossil or electricity), the RLT cannot run on empty.

With a RLT, the maker of the RLT is known as the trustmaker, grantor, settlor, or trustor.

The trustmaker typically serves as the initial trustee until dying or becoming incapacitated.

When either of these events occurs, the successor trustee can automatically take control of the RLT without the involvement of the courts.

In some instances, there may be complications when transitioning control of RLTs to successor trustees.

Financial institutions may require substantial documentation before accepting the authority of the new trustee.

In contrast to a RLT-based estate plan, under a will-based estate plan, assets solely owned by the decedent without a surviving joint owner or designated beneficiary become part of the "probate estate" for administration before eventual transfer to heirs under the last will.

Incapacity planning with a will-based estate plan relies on a separate document, a general durable power of attorney, to appoint an agent to manage your finances should you become incapacitated.

Without this essential document, your loved ones must petition the court in a guardianship or conservatorship proceeding.

Discussing your goals and estate planning priorities with an experienced estate planning attorney can help you confidently choose between a will-based or a RLT-based estate planning approach.

Reference: Forbes (June 25, 2023) "Which Is Best For Your Estate Plan: A Will Or Trust?"