Basics of a Revocable Trust

• Revocable trusts are devices in which an individual (called the grantor) transfers assets to a third party (called a trustee) for the benefit of himself or another (called the beneficiary). In the case of revocable trusts, the beneficiary is usually the grantor himself. The grantor is given the power to alter the trust at anytime, hence the term “revocable.” Revocable trusts do not provide any estate tax benefits; however, they do avoid probate court and dictate how the grantor’s heirs will be provided for.
  
  

Basics of a Will

• Wills are set up during an individual’s lifetime and outline various things that should happen after her death. These directions could list how funeral arrangements should take place and who will receive which assets after the death of the person making the will (called the testator). Properly documented wills can avoid a lot of confusion after someone's death and also help to avoid probate court.
  
  

Similarities

• Revocable trusts and wills are both set up during the lifetime of the individual creating such. Both help to avoid probate by outlining ownership transfers to beneficiaries before or at death. Both may include special instructions such as providing for a handicapped child or for a charitable organization.
  
  

Differences

• Although both are made during life, wills only come into effect at death while revocable trusts are utilized during life. Revocable trusts are devices that have an actual dollar amount worth that are invested and continue to increase in value throughout the years. Wills are not the same in that they do not hold monetary value or any type of assets; it is simply a document to provide instructions for future events. In addition to monetary growth, revocable trusts also provide an income stream to the beneficiary because the assets are invested and made productive.
  
  

Benefits

• As mentioned, both wills and revocable trusts help to avoid probate court, which can be a costly and lengthy process. Confusion is also avoided at a time that can be very stressful and a time in which everyone might not be thinking clearly. Although both tools are an important part of estate planning or financial planning, it should be noted that neither revocable trusts nor wills avoid estate taxes, which is usually a goal of any estate plan.