Estate vs. Trust — What's the Difference?

An estate represents the total assets owned by an individual at the time of their death, including property, investments, cash, and personal belongings. The management and distribution of an estate are often executed according to the deceased's will or, in the absence of a will, through state laws. The estate goes through a legal process known as probate, where debts are settled and assets are distributed to heirs.

A trust, conversely, is a legal entity created to hold assets, where one party, known as the trustee, manages the assets for the benefit of another party, the beneficiary. Trusts can be established during an individual's lifetime (living trusts) or as part of a will (testamentary trusts). Trusts are used for various purposes, including asset protection, tax planning, and avoiding probate.

Both estates and trusts involve the management and distribution of assets, but they operate in different legal frameworks. An estate is a temporary arrangement until the assets are distributed to the heirs, whereas a trust can be a long-term arrangement, potentially lasting for generations, depending on its terms.

Trusts offer more control over how and when assets are distributed to beneficiaries, which can be particularly useful for minors, individuals with special needs, or in situations where the grantor wishes to maintain some level of control over the asset distribution. Trusts can also provide privacy and efficiency, as they often avoid the probate process, unlike estates, which are subject to public record and can be time-consuming and costly to administer.

The decision between managing assets through an estate or a trust depends on individual circumstances, including the complexity of the assets, the goals for asset distribution, and concerns about privacy and probate. Many individuals use a combination of both, with certain assets passing through the estate and others managed within a trust, to achieve their overall estate planning objectives.