What Is the Difference Between a Will and a Trust?

Estate planning is an opportunity to protect your loved ones and make sure your assets are distributed according to your wishes after you die. There are several key mechanisms you can use to do this, each of which has different advantages. Understanding the key differences between a will and a trust can help you make informed decisions about the best way to manage your estate, particularly as each of these legal documents has different asset management and tax implications.

While both trusts and wills serve the purpose of safeguarding your estate and ensuring your intentions are followed, they operate in very different ways and can offer distinct advantages depending on your circumstances. Understanding the differences can support your plans for transferring assets, distribution of your estate and managing estate taxes, and help you to plan efficiently and unambiguously.

In this guide, the experienced probate solicitors at Percy Hughes & Roberts will explain what a will and a trust are, explore the key differences between them, and help you determine which one - or whether a combination of both - best suits your needs.

If you have any questions we have not answered, our expert Wills, Trusts & Probate solicitors are happy to speak to you regarding your query and provide the legal services you need. You can contact us by completing the enquiry form below or by calling 0151 666 9090.

What Is a Will?

A will is a legally binding document that outlines how you want your estate - such as money, property, and possessions - to be distributed after your death. If your wishes are clearly stated, the document provides instructions to those responsible for handling your affairs and helps to avoid confusion or disputes among family members.

When creating a will, you appoint an executor to manage your estate, settle any debts, and pass your assets to your beneficiaries according to your instructions. This should be someone you trust, which could be a family member, friend, or a professional, such as a solicitor.

A will allows you to:

• Specify who will inherit your assets
• Appoint guardians for any dependent children
• Make specific gifts or donations to individuals or charities
• Set out your wishes for funeral arrangements
• Minimise potential inheritance tax liabilities

As such, it is a fundamental estate planning tool. If you pass away without a will - known in legal terms as dying intestate - your estate will be distributed according to strict legal rules that may not reflect your personal wishes. This could result in certain family members or friends being left out, or even higher tax liabilities.

Creating a will that outlines your wishes for your estate is the minimum requirement in having your decisions carried out. A clear and legally valid will gives you peace of mind and the confidence that your estate will be handled exactly as you intend.

What Is a Trust?

A trust is a legal arrangement where assets - such as property, money, or investments - are managed by appointed trustees for the benefit of chosen beneficiaries. It can be created during your lifetime or come into effect after your death, depending on your estate planning needs.

The person who sets up the trust, who is known as the settlor, outlines how the assets should be managed through a trust deed. The trustees then have a legal duty to manage the assets in the best interests of the beneficiaries.

Common types of trusts include:

• Bare Trusts - which give beneficiaries full access to assets when they reach a certain age or milestone.
• Life Interest Trusts - which allow someone to benefit from an asset (e.g., living in a house) during their lifetime, with it passing to another beneficiary later.
• Discretionary Trusts - which give trustees control over how and when to distribute assets.

What Is the Difference Between Wills and Trusts?

While both wills and trusts are key tools in estate planning, they serve different purposes and operate in distinct ways. Understanding these differences is essential when deciding which option is right for you, and the answer often involves a combination of both.

1. Timing of effect

• A will only comes into effect after your death, guiding how your assets should be distributed.
• A trust can be set up to operate during your lifetime (a lifetime trust) or come into effect after your death (a will trust).

2. Control over assets:

• A will passes full ownership of assets directly to beneficiaries after your death.
• A trust allows assets to be controlled and managed by trustees for the benefit of chosen beneficiaries, often providing greater flexibility and protection. You can decide whether assets pass to beneficiaries at the trustees' discretion, or when certain milestones are reached.

3. Probate process

• A will typically needs to go through probate, a legal process to validate the document and oversee the distribution of assets.
• Assets held in a trust generally avoid probate, allowing for quicker and more private distribution.

4. Privacy

• A will becomes a public document once it enters probate, meaning anyone can view its contents.
• A trust remains private, with details only accessible to those directly involved.

5. Tax planning and asset protection

• While a will can include strategies to reduce Inheritance Tax, its options are more limited.
• Certain types of trusts can offer tax advantages and help protect assets from issues such as care home fees, creditor claims, or family disputes.

In simple terms, a will focuses on who gets what after you pass away, while a trust offers greater control over how and when your assets are managed and distributed, both during your lifetime and after. Choosing the right option depends on your individual circumstances and long-term goals. You can use your will as an opportunity to create a trust, which enables these mechanisms to work in tandem and enable you to gain the advantages of both. This can help you to save money, especially for complex estates, and protect the inheritance of your designated beneficiaries.

When Should You Use a Will or a Trust?

Deciding whether to use a will, a trust, or a combination of both depends on your personal circumstances, estate planning goals, and how you want your assets to be managed and distributed. Each tool offers distinct advantages depending on your needs, and has unique practical applications.

When to Use a Will

A will is generally suitable if you want to:

• Distribute your entire estate after your death in a straightforward manner.
• Appoint guardians for dependent children.
• Make specific gifts or donations to family, friends, or charities.
• Outline funeral wishes and other personal preferences.
• Keep costs lower compared to the more complex setup of a trust.

A will is essential for most people, even if a trust is also used, to cover any assets not placed into the trust and to appoint guardians for minors.

When to Use a Trust

A trust is often a better option if you want to:

• Manage assets during your lifetime and after your death.
• Provide for vulnerable beneficiaries who may not be able to manage large sums responsibly.
• Protect assets from care home fees, divorce settlements, or creditor claims.
• Set conditions on how and when beneficiaries receive their inheritance (e.g., after reaching a certain age or achieving specific goals).

Using Both a Will and a Trust

In many cases, the most effective estate planning involves using both a will and a trust. For example, a will can outline your overall wishes, appoint guardians, and manage assets not included in a trust, while a trust can offer added protection, flexibility, and tax planning benefits.

Combining both tools ensures your estate is managed according to your wishes, both during your lifetime and after your death, while also providing added protection for your beneficiaries. Seeking legal advice is key to making the right choice for your situation.