Trust and inheritance may seem like the same option, but they’re completely different from one another. Inheritance means assets that will be inherited by the heirs of the deceased person typically through the probate process.
While Trust is a fiduciary arrangement in which the owner of assets (grantor) puts everything in the Trust by transferring its legal rights. Grantors also create a legal document that describes how the assets should be used, and who will be the beneficiaries and trustee.
The noticeable point of the Trust is, trust property doesn’t go through probate. This is why it’s considered a safe and time-saving process, but is it really? We’ll answer this question below with our detailed guide about “Trust vs Inheritance.” So let’s get into the details.
What’s Trust? An Overview
A Trust is a legal arrangement established between two parties: the grantor and the Trust itself. The grantor, who is the legal owner of assets, transfers the rights of the assets to the Trust and then the Trust holds the property.
Within this arrangement, a trustee is also appointed to manage the Trust and its assets. To manage the Trust, the grantor creates a legal document that sets out rules and regulations to manage the assets and who’ll be the beneficiary and how they’ll inherit the assets.
There are two main types of Trust: revocable and irrevocable. Revocable Trust agreement can be changed, like the beneficiary’s name, trustee, and the rules. However, this can’t happen with the Irrevocable Trust; and it can’t be changed by the grantor once it’s created.
What’s Inheritance? An Overview
Inheritance means the assets and money someone has left behind after their death. This process is often governed by Will in which the deceased person has nominated the beneficiaries and how much property they’ll inherit.
The property included in the Will goes through probate, a legal procedure overseen by a probate court. During probate, the court ensures the validity of the Will and facilitates the transfer of assets according to the decedent wishes.
If someone passes away without a Will, their inheritance is distributed based on the laws of intestate. In such cases, the probate court determines the rightful heirs and distributes the assets in accordance with the legal guidelines.
5 Key Differences Between Trust Vs. Inheritance
Below are the five key-differences between Trust and Inheritance. You can read about these differences and make an informed decision about which one is the best option for your estate matters.
1. Legal Structure
The main difference between Trust and Inheritance is the legal structure. A Trust is a legal entity, in which a grantor transfers the assets legal rights to the name of Trust and sets the rules and regulation for the Trustee.
On the other hand, inheritance refers to the assets (no legal status). When it comes to inheritance, who will inherit and what will inherit, remain unspecified unless the deceased individual left behind a Will naming the beneficiaries and the assets.
2. Flexibility of Changing Terms & Beneficiaries
Trust has two main types and one of them is Revocable Trust. The specialty of this Trust is it provides flexibility, its terms can be modified, as well as the beneficiaries and the Trustee according to the wishes of Grantor.
Inheritance lacks the legal entity status. If there’s a Will, then the transfer of estate rights will be easier but in the absence of the Will, there’s no flexibility. The court will decide the beneficiaries and divide the estate as per the law not by the wishes of the decedent.
3. Proper Guideline & Control
The reason most individuals prefer Trust is because of the power it provides to the grantor. A grantor can set out proper guidelines and control everything about how assets will be sold, or manage, who’ll be the administer of the estate even after death.
You can also control the inheritance transfer process with Will. But if you don’t have a Will, things will get complicated. In that case, the law decides who gets your estate, and it might not be what you wanted, leaving you with no control.
4. Safety From Probate Case
Whether you’re aware of it or not, all of your inheritance will go through a legal process called probate, even if you’ve left a will. This process is a necessary step in inheritance cases and the main issue with probate is that it usually takes about six months to a year to complete.
However, individuals who have placed assets in a Trust don’t have to worry about probate. Assets held in a trust are owned by the Trust itself. Since only assets owned by the deceased individual go through probate, assets in a Trust are safe from the probate.
5. Security For The Assets
Inheritance is divided through two ways either Will or the according to State laws. Neither of these methods offers security for the assets. In fact, one of the first tasks the court undertakes is to settle any outstanding debts owed to creditors and taxes owed to the government.
In contrast, Trusts provide a shield against such problems. This is because any debts and taxes owed are associated with the deceased individual, and if a property is held within their name, these obligations are settled using the assets from the estate.
Assets held in a Trust are not in the name of the deceased, so they remain safe from such claims, providing a higher level of security. This is why legal experts suggest creating a Trust with the help of an experienced Trust attorney rather than a Will.
Trust Vs. Inheritance: Final Thoughts
Trust means a fiduciary relationship between the Trust and the grantor while inheritance means the assets someone has left behind. If the assets are held in the Trust everything will be managed according to the terms stated by the grantor.
However, in the inheritance case the assets will be distributed as per the guidelines of the Will. When there’s no Will, the State law comes into rescue and the court decides the beneficiaries and distributes the property accordingly.
While the choice ultimately rests with you, it’s worth noting that opting for a Trust is a more secure option than a Will for inheritance transfer. Trusts provide protection from creditors and taxes, and their assets rights can be transferred to the heirs without the long probate process.