Do Americans know the difference between a Will and a Trust, two critical components of an estate plan?
In a recent estate planning study, Trust & Will surveyed 2,000 American adults on their estate planning knowledge and preferences.
The results revealed that while most Americans know the general difference between the two, which is impressive. However, many individuals don't fully grasp the nuances and specific mechanisms utilized by each. There is still room for improvement when it comes to being able to identify the key components of a Will and a Trust, their specific differences, as well as how they are meant to be utilized.
After going over the study results surrounding this topic, we’ll provide a refresher on the key differences between a Trust and a Will and what can be included in each.
Trust vs. Will: Most Americans Know the General Difference
In one question, Trust & Will asked survey respondents to select the answer that correctly defines the difference between a Will and Trust.
59% of survey respondents selected the correct answer: “A Will is a legal document that outlines how to distribute properties after death, whereas a Trust is a legal arrangement that is managed by a third party, which allows the transfer of ownership for property at any time designated by the creator.”
22% of respondents selected the incorrect answer:
“A Will is a recommendation of how your assets should be distributed after you die and can be edited by immediate family members, whereas a trust ensures that your assets will only go to family members and if managed by only themselves.”
9% of respondents selected an alternate incorrect answer:
“A Will outlines only how assets will be distributed such as property and belongings, whereas a trust is managed by a third party and pertains to the money and/or debts the person distributes after death.”
Last but not least, the remaining respondents selected the answers “not sure” and “none of the above.”
This shows us that while more than half of survey respondents understand the general difference between a Will and Trust, 40 percent (a significant amount) do not understand the specific nuances between the two or are unsure.
Later on, we will go through these answers to explain why some of them are incorrect.
Trust vs. Will: Understanding the Nuances
In the second question on the topic, Trust & Will asked survey respondents to identify what is typically included in a Will. They were asked to select their answers from the following list, provided with their corresponding response rates:
Beneficiaries, those who are inheriting the assets (65%)
Instructions for how and when beneficiaries will receive the assets (58%)
An executor, someone who carries out the provisions of the will (53%)
Guardianship of minor children (40%)
Who has legal right to your assets while you’re living (41%)
Guardianship of pets (35%)
Investments/money (26%)
Debts (23%)
Digital assets (23%)
Business expenses (17%)
Retirement plans/accounts (14%)
Jointly-owned property (11%)
Not sure (5%)
Survey respondents were invited to select any of the options that they believe is typically included in a Will. The correct answers, thus components that can be included in a Will, are shown in bold. Anything not in bold are typically not included in a Will and are therefore incorrect.
Overall, this survey question demonstrates that there is generally some confusion around what can or cannot be included in a Will, thus pointing out an opportunity for learning.
Let’s go over the definition of a Will and a Trust, and then go over their key differences. Then, we will go over the survey questions and debunk the incorrect answers.
Understanding Wills
A Will is a legal document that outlines your wishes for distributing your assets after your death. It allows you to specify who will inherit your property and assets, as well as who will be responsible for carrying out your final wishes. It is often thought of as a simple and straightforward way to transfer your assets to your beneficiaries.
Wills, however, do not avoid probate. This means that even if you have a Will, your estate will still go through the probate process, where a court oversees the distribution of your assets. This can be time-consuming and costly, which is why many people opt for a Trust instead.
Understanding Trusts
A Trust is also a legal document that outlines how you want your assets to be managed and distributed after your death. However, unlike a Will, a Trust does not go through probate. This means that your assets can be distributed to your beneficiaries without the delay and expense of court involvement.
Additionally, a Trust can offer more control over how and when your assets are distributed. For example, you may want to leave money for a minor child or grandchild but don't want them to receive it all at once. A Trust allows you to specify when and how much they receive, ensuring that your assets are used for their benefit in a responsible manner.
Will vs. Trust: Key Differences
It's important to understand that a Will and a Trust are not interchangeable documents. They serve different purposes and can work together in an estate plan.
A Will only goes into effect after your death, whereas a Trust can also be used during your lifetime to manage assets (not just after death.)
A Will must go through probate, while a Trust does not.
In some cases, a Will may be the only document necessary, while a Trust offers more flexibility and control over your assets.
A Will and Trust can work in tandem in an estate plan, meaning that can take advantage of the benefits offered by each.
Debunking Common Misunderstandings about Wills vs. Trusts
This study helped shine a light on areas in which Americans have a firm understanding when it comes to the differences between a Trust and a Will, as well as areas that are proving a little tricky to grasp.
Now, let’s debunk the incorrect answers that were offered in the study:
What is the difference between a Trust vs. Will?
FALSE: “A Will is a recommendation of how your assets should be distributed after you die and can be edited by immediate family members, whereas a trust ensures that your assets will only go to family members and if managed by only themselves.”
Wills are used to make your wishes known. It does not make a recommendation; rather, it is a legal document that is used in court to determine how assets should be distributed. They cannot be edited by anyone other than yourself. Once you pass away, it cannot be changed.
A Trust can be used to transfer property that you own to any recipient (Beneficiary) of your choice, and they do not necessarily have to be family members. Further, these family members do not necessarily manage the Trust or its assets. The person creating the Trust (the Trustor) is responsible for selecting a Trustee, or a third party who is entrusted with the duty of managing the Trust assets and eventually making distributions to the beneficiaries of the Trust per the terms outlined by the Trustor.
FALSE: “A Will outlines only how assets will be distributed such as property and belongings, whereas a Trust is managed by a third party and pertains to the money and/or debts the person distributes after death.”
There are multiple aspects of this statement that are incorrect.
First and foremost, a Will does not “only” address the distribution of assets. While it does do that, it can also address many other important elements such as wishes regarding your funeral and remains, Guardianship for your children, and more.
The second incorrect aspect is regarding the Trust. A Trust is managed by a third party and does pertain to money and debts, but not necessarily always after death. You can set up a Living Trust, which manages your assets during your lifetime as well.
What is typically included in a Will?
Now let’s move on to the next question, which asked survey respondents to identify any and all components that are typically included in a Will. The options provided included correct and incorrect answers. Let’s go through and analyze each possible answer. The correct answers are in bold and the incorrect answers are not.
Beneficiaries, those who are inheriting the assets: Both Wills and Trusts implement the use of named Beneficiaries, individuals who you wish to inherit property.
Instructions for how and when beneficiaries will receive the assets: Typically, you can only use a Trust to leave specific instructions regarding the timing and manner in which assets are distributed. A Will only specifies who should inherit property after your death. If you have caveats and stipulations surrounding inheritances, you should use a Trust.
An executor, someone who carries out the provisions of the will (53%): An Executor is named in a Will while a Trustee is named in a Trust.
Guardianship of minor children (40%): Many individuals are surprised to learn that a Will can do so much more than address asset distribution. You can also name a Guardian for your dependent loved ones. If you have minor children, that provides all the more reason to get your Will in place as soon as possible to ensure that someone of your choosing will look after them in the unlikely event that something were to happen to you.
Who has legal right to your assets while you’re living (41%): Wills only address what should happen to your property and assets after your death. If you want to provide legal rights to your assets while you’re living, you should set up a Living Trust.
Guardianship of pets (35%): Fun fact! Guardianships don’t just have to be for your children. They can also be for your fur babies! That’s right. If you want to make sure there will always be someone lined up to care for Mr. Snuggles, then you should take care to name a Pet Guardian in your Will.
Investments/money (26%): You can choose to distribute your cash assets and investments through your estate by including them in your Will. Alternatively, you can transfer these types of assets into a Trust for distribution to your Beneficiaries outside of probate.
Debts (23%): While you may not necessarily specify your debts and how they should be paid off, if you do have debt it can be very helpful for your loved ones if you use your Will to leave instructions on what you debt you have and what assets should be liquidated and used to pay them off.
Digital assets (23%): It can be easy to forget about all the assets we accumulate online, but nevertheless it is important to consider any information, profiles, data, and assets we own that are stored digitally. Your Will can, for example, include instructions on how to log into your cloud storage, or who should inherit your cryptocurrency, for example. Just like any other type of asset, you can transfer your digital assets into a Trust should you wish to avoid probate.
Business expenses (17%): If you own a business, then you should take care to separate your business interests, including expenses, from your personal estate. Business interests are in general not included in a Will and instead should be handled through a succession plan.
Retirement plans/accounts (14%): In most cases, retirement plans and accounts have a designated beneficiary and transfer directly to them in the case of your death. If you’re not sure, be sure to contact your retirement plan broker and inquire about their beneficiary designation options and ensure that you’ve named one if you wish to avoid probate.
Jointly-owned property (11%): If you are the sole owner of property, then you are entitled to transfer that property as you see fit using your Will or Trust. However, jointly-owned property typically have transfer-on-death mechanisms through which your property share is automatically absorbed by the surviving owner (spouse, business partner, etc.) In these cases, you would not include them in your Will.
Put Your Knowledge to Action to Today
When it comes to deciding between a Will or a Trust, there is no one-size-fits-all solution. Each individual's situation is unique and requires careful consideration. We hope that this guide helped you pick up even more bits of knowledge regarding the differences between a Will and a Trust.
If you found that there is a lot of information to absorb, that’s because there is! It just goes to show how robust Wills and Trusts truly are, and how there are a lot of nuances to discover.
Also know that you don’t have to choose between the two. Some of the best estate plans utilize the power of both! You can absolutely use a Will and a Trust in tandem. For example, you can use a Will to let your final wishes be known, name a Guardian for a pet, and leave final instructions. You can also put a Trust in place to transfer your assets and property outside of the probate process.
Ready to find out more about how you can put a Will and/or Trust into place? Trust & Will’s platform makes it easy for you to do all online from the comfort of your home! Take our free quiz to see where you should get started, or compare our different estate planning and settlement options today!
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