Determining if you need a trust or a will can get confusing, because on the surface both appear to do the same thing: They dictate how your assets will be doled out upon your death. But there are significant differences to consider.
First, let’s break down the two options:
Will: This is a legal document that spells out exactly who will get your assets when you die. You appoint an executor who will do the work of distributing assets, plus paying taxes and any money you still owe to creditors. After your death, there’s a judicial process called probate, which determines that the will is valid and makes sure assets are distributed according to its terms. The probate process makes the will public record.
Trust: This is a legal arrangement that allows a grantor to transfer specific assets into the trust. These assets are then managed by the trustee to the benefit of the beneficiary. Different types of trusts suit different circumstances: You can establish a trust while you’re alive (living trust) or have it spring into being once you’re dead (a testamentary trust). You can transfer assets permanently (an irrevocable trust) or allow the transfer of assets in and out of the trust while you’re alive (revocable living trust). But one thing that unifies all trusts is they allow you a great degree of control over how your assets are distributed after your death—including not just to whom but when and on what terms.
Still have questions? Read on…
If you change your mind about how you want your assets allocated, you have options. With a will, you can reallocate assets at any time as long as you’re still of sound mind. In fact, many experts suggest you review and update your will at regular intervals as life circumstances can change.
With a trust, it depends on the type of trust you have. An irrevocable living trust means you can’t revoke it or change the terms. If, on the other hand, you have a revocable living trust, you can change the terms whenever you want as long as you’re of sound mind.
Should I have a will or a trust—or both?
Experts agree that everyone should have a will—whether or not they also have a trust. That’s because a trust would very rarely hold all of your assets. Having a will can speed the probate process for anything not contained in the trust and make sure those assets are distributed according to your wishes (rather than state intestacy laws).
But even with a will, you might want to establish a trust too—and many, many people have both. Whether you need both depends on your financial situation, the number of assets you have, and who you want to have access to them and when. With an irrevocable trust, for instance, there may be an immediate benefit to your heirs, as the assets aren’t counted as part of your estate and won’t factor into any estate or inheritance taxes. A will can’t offer that type of tax perk.
With any type of trust, you’ll also gain a measure of control that’s impossible with a will. For instance, if you want to provide long-term financial support to someone but only want them to access a portion of that money every year, you can spell that out with a trust. Ditto if you only want the funds used for educational purposes or medical expenses. If you only have a will in place, there’s no way to control how quickly or under what conditions your heirs gain access to their inheritance.
And there are other benefits of a trust that can make it a worthwhile complement to a will. For instance:
- If you really value privacy: When a will is filed with the probate court, it becomes part of the public record, meaning anyone can see what your assets were and how they were divided. That’s not true with assets held in a trust.
- If you own out-of-state property: Placing that real estate into a trust can help your heirs avoid the potential hassle and expense of navigating probate and the estate tax code in two separate states.
- If you have young children: Minors aren’t able to inherit assets directly, so any assets listed in a will would be placed in a court-supervised guardianship for the benefit of the minor until he or she reaches 18. But a guardian may not approve expenses that you value—such as private school or summer travel. To ensure your child would be taken care of in the manner you wish, you could establish a revocable living trust, or provide for a testamentary trust in your will.
Will these legal documents benefit me while I’m still alive?
Not with a will. A will only goes into effect after a person has passed away. However, a trust can come into play if you’re alive but incapacitated. In that case, the trust can be managed by the trustee you’ve named. This way, you’ll feel confident that your assets are in good hands even if you’re no longer able to oversee them yourself. A will doesn’t give you any of these protections while you’re alive.
No matter what, you’ll want to consult with an experienced estate planning lawyer to create a plan tailored to your situation.
By Kate Rockwood
