Confused or unsure about the difference between Wills vs Trust? Don’t worry, you’re not alone!

These two mighty legal documents are often both talked about together in Estate Planning — despite them fulfilling distinct and separate purposes in the management and distribution of your property and assets.

Consider this your complete Trust versus Will 101 — breaking down the characteristics and functions of both legal tools, and whether one or both are suitable for your particular requirements and wishes.

What Is the Difference Between a Will and a Trust — In Brief!

Here are the crucial difference between Will and Trust key points to take away!

  • Will — or Last Will and Testament, is a legal document that outlines how your estate will be distributed to your chosen beneficiaries after your passing. It can include establishing a Trust.
  • Trust — of which there are several formats, is operated by one or more Trustees, who hold and later distribute your assets. A trust can be created in your lifetime, or planned for in your Last Will and Testament, to take effect after your demise.

What Is a Will?

Although you make your Will while you are alive, it describes how your assets will be divided after your death. Generally speaking, your Will includes the following (where applicable to your circumstances).

  • Your beneficiaries — the people whom you wish to receive a share of your estate after your passing. This can be cash, investments, property, or personal belongings.
  • The name of your Executor — the person who will gather together your assets and possessions after your demise, and distribute them to the beneficiaries.
  • Funeral, cremation, and burial directions and preferences — and any information on prepaid arrangements.
  • Guardianship wishes for children under the age of 18 years.

You must sign your Last Will and Testament, and have it witnessed by two additional persons — who shouldn’t be named as beneficiaries in your Will.

Once created, you can update and amend your Will at a future date. This is common when the document has been made by a younger adult — who finds that their partner/spouse, children/grandchildren, and assets change as time passes.

What Is a Trust?

In Australia, a Trust is a legal framework that holds your assets — under the management of one or more Trustees — who distribute income generated by the Trust to beneficiaries at set intervals. They provide lump sums to beneficiaries when they reach a particular age, or meet pre-agreed milestones or conditions.

When the Trust is created, you determine the parameters of the Trust Deed. This includes who will act as Trustees, who will benefit from the Trust, and when the income or assets will be distributed. Therefore, despite being run by a third party — it still follows your wishes, ambitions, and preferences.

Whereas a Will always takes effect after your death — a Trust can be established during your lifetime, or after your passing.

Trusts — Dead or Alive!

As this becomes a little complicated, here are some more key points to make it simple!

  • Testamentary Trust — comes into force after your passing and is stated in your Will. The distribution of assets is at the discretion of the Trustee(s). Hence, it is also a form of Discretionary Trust.
  • Discretionary Trust — is also known as a Family Trust. It holds and shares income and assets with family members. When arranged and run during your lifetime, it is a form of Inter Vivos Trust (or Living Trust if you’re not from Ancient Rome).

Testamentary Trusts

A Testamentary Trust is outlined in your Last Will and Testament. Generally speaking, instead of your estate being divided and shared directly to your beneficiaries at your passing, your assets, in whole or in part, are placed into a Trust.

The Trustees — chosen by you and acting in accordance with your pre-demise instructions — decide when, how much, and to whom any income generated by the Trust, or lump sums, should be allocated. 

The reasons you may prefer the Trust framework as opposed to the straightforward Will allocation of your assets are individual and nuanced. Common motivations include:

  • Flexibility — Testamentary Trusts last 80 years. This allows them to cater for grandchildren who aren’t born before your passing.
  • Spouse remarriage — if you pass on and leave your partner behind, you can protect their inheritance from fortune-seeking future husbands, wives, or de facto partners.
  • Creditor protection — if one of your beneficiaries has financial issues, their future inheritance held in a Trust cannot be accessed by money-hungry creditors.
  • Welfare — should one of your intended beneficiaries have personal challenges such as addiction, gambling, or neuro-divergency, the Trust can safeguard their inheritance and act in their best interests.
  • Tax efficiency — inheritors can benefit from Capital Gains Tax advantages, speak to a licensed Financial Advisor for more advice.

Discretionary Trusts

A Discretionary Trust, sometimes referred to as a Family Trust, is most commonly used to hold, manage, and then share assets with individuals. Usually, these individuals are family members — and can also include future spouses, children, and grandchildren.

And, as the allocation of wealth is done at the discretion of the Trustee — although following the terms of the Deed — it’s called a Discretionary Trust.

If you’re thinking to yourself, ‘Hold on! That sounds the same as a Testamentary Trust!’ — you’re correct! And, well done for paying attention! A Testamentary Trust is a form of Discretionary Trust.

However, while a Testamentary Trust is established after your passing, you can still arrange and allow a Trustee to manage a Discretionary Trust during your lifetime — known as an Inter Vivos Trust.

This allows families to hold wealth and take advantage of tax planning benefits — and is also often utilised for business ownership and shareholding.

Disadvantages and Benefits of a Trust vs Will

Using a Testamentary or Family Trust vs Will can, for some people, offer significant benefits. Remember, despite Trusts being used as a plot tool in many glitzy Hollywood films depicting the super-rich — these legal frameworks are no longer the sole domain of the wealthy.

Trusts can provide the benefits of:

✔Avoiding probate — Trusts can avoid costly probate and asset distribution delays, ensuring beneficiaries receive a greater share of their inheritance, faster!

Contest and challenge — it’s significantly more difficult to challenge a Trust than a Will, allowing your wishes to be followed without debate.

✔Preventing Nosey Parkers — Wills are on public record the moment they reach probate, Trusts are not. This can help to keep your affairs private.

That said, there are some downsides:

❌Cost — your Trust will be an extra expense, as it doesn’t replace a Will entirely.

❌Time — a Will can be drawn up relatively quickly. Trusts, depending on their complexity, can take much longer.

❌Management — a Trust needs to be managed and controlled, often for many years. Apart from a few timely updates, Wills are over and done with fairly rapidly.

The Bottom Line — Do I Need a Will or a Trust?

So, the all-important question is, are Trusts better than Wills? The answer is, it depends — sorry if you were looking for a definitive conclusion.

The mistake, in my opinion, lies in assuming these two legal frameworks can function as direct alternatives or substitutes for one another. They cannot.

Even if you plan on managing and sharing the majority of your assets through a Living or Testamentary Trust — you still need to create a Last Will and Testament. Guardianship of minors, funeral arrangements, and what happens to that bizarre-looking vase given to you by Auntie Mabel — just some factors that will not be tackled by a Trust.

Hence, the question should be, do you need a Trust in addition to your Will?

And, this depends on your personal circumstances, your lifetime and post-passing wishes, and the needs, requirements, and challenges of your intended beneficiaries.

Therefore, it’s crucial to receive specialist guidance from both a Wills and Estate Lawyer and Accountant or Financial Advisor, who can advise on the benefits, and downsides, of arranging a Trust — whether Living or Testamentary.

Falzon Legal — Your Patient and Considerate Wills and Estates Lawyer

Whether at our Parramatta offices, in your home, or in your place of residential care — we will considerately and patiently guide you through the difference in Will and Trust frameworks, and what is most appropriate for your particular circumstances.

Compassionately, and without confusing legal jargon, Falzon Legal will ensure that your Will — and Trust if required — provides the most advantageous position to you and your beneficiaries. Defending your legacy against unnecessary taxation, malicious profiteers, and the mental or physical challenges of your inheritors.

Allow Falzon Legal’s understanding team to answer your Will vs Trust questions — chat with us today.