Will vs. Trust: Which is Right for You?
Knowing that you should plan for the end of your life is one thing. Actually doing it is another. Most of us don’t just struggle with the emotional discomfort of contemplating our own death. We also get bogged down in the decisions and the details.
One of the most common questions about estate planning is the difference between a will and a trust. People want to figure out the answer — wills vs. trusts? Which is better?
The truth is, there’s no one answer. But we can help you understand the pros and cons of each so that you can make an educated decision about which is best for you and your family.
The difference between a will and a trust
The primary purpose of a will and the primary purpose of a trust are the same: to name the beneficiaries who will receive your assets and to name someone in charge to carry out your wishes. However, wills and trusts operate quite differently.
The main difference between a will and a trust is that a will must be probated after the death of the drafter (the person who wrote the will), and a trust goes into effect before the death of the grantor (the person who created the trust). We’ll dive deeper into all the detailed ways wills and trusts differ and how that may impact your choice.
First, some basics on wills vs. trusts:
A will is a document that tells people — the court, the executor, heirs — how to distribute an individual’s assets after they are deceased. A will does not go into effect until the will is proven valid in court after the creator’s death. That means a will has to go through the probate process.
Probate is the court-supervised process that determines the validity of a will and oversees the transfer of assets to the legal heirs. In fact, the word “probate” means “to prove,” and a will is not technically in effect until it has been proven.
A trust, on the other hand, is more than a document.
A trust is a legal arrangement where a person or an institution (the trustee) holds the legal title to property on behalf of someone else. When people talk about trusts in a wills vs. trusts conversation, they’re almost always talking about living trusts (also called revocable trusts). That’s what we’ll be talking about here.
As opposed to a will, a trust goes into effect immediately upon its creation. In most instances, the creator of the trust receives income from the trust during their life, and when they die, the remainder of the trust goes to the intended beneficiary.
The pros and cons of using a will
Now that you know the basic difference between a will and a trust, let’s talk about the pros and cons of each.
The benefits of using a will
The biggest benefit of creating a will is that it’s pretty simple to create and maintain..
- Creating a will is administratively simple. Drafting a will generally only requires the signatures of two witnesses who are not beneficiaries. The will also covers any assets that are solely in your name when you die. You don’t have to specify certain assets or do anything special with them to make sure they’re included. If you say, “I want to leave everything to Jim,” then everything in your estate (after paying debts and taxes) will go to Jim.
- Updating a will is straightforward. You can amend a will at any time during your life. Because your will does not go into effect until your death, you can make as many changes to it as you’d like. Any new versions have to be properly witnessed, but you are not limited in your ability to modify it.
- You can use your will to appoint a guardian for minors. In fact, many people’s motivation for drafting their first will is to name a guardian to care for their children if a tragedy occurred.
- You can use a will to name an executor to manage your estate. That person would be responsible for all the tasks that are required to transfer ownership from the deceased to their estate and ultimately, to any beneficiaries.
- You can use a will to name a custodian or financial guardian. If you may be leaving assets to a minor, they’ll need someone to manage the assets until they reach the age of majority (18 in most states).
The drawbacks of using a will
The number one drawback of relying solely on a will is that wills do not keep your assets from going through probate.
- Assets that are included in a will pass through probate. Probate can be a long and expensive process, and in some cases, going through probate can reduce the assets available to beneficiaries.
- Information in a will cannot be kept private. A will becomes a public record once it is entered into probate.
- You cannot control the age a minor will receive funds. Without setting up a testamentary trust in the will, you cannot control the age a minor will inherit. They’ll receive their inheritance when they reach the age of majority whether they are mature enough to handle those funds or not.
- You cannot use a will to appoint someone to make decisions for you if you become incapacitated. You can name someone to make decisions on your behalf with additional documents, such as a power of attorney or healthcare proxy.
The pros and cons of using a trust
In the wills vs. trusts decision, people often think trusts are the winning answer only for those who are extremely wealthy. While those with high net worths do often create trusts, these legal structures have benefits that could be helpful even for those with smaller estates.
The benefits of using a trust
For most individuals, the biggest benefit of a trust is that the assets in a trust don’t have to go through probate.
- Assets included in a trust pass outside probate. As we stated above, probate can be a long and expensive process. Removing assets from that process saves your loved ones time and money. It also means that the assets within the trust transfer directly to the beneficiary without any interference by a court.
- Trusts can remain private. Because assets in a trust do not have to go through probate, the trust does not become a matter of public record.
- Trusts can provide tax savings. Assets placed within an irrevocable trust are not subject to estate tax when they are disbursed.
- You can use trusts to protect funds for a minor. With a trust, you can name a trustee to manage funds on behalf of a minor or someone with a disability. You set the age or life event upon which they may take control of the funds — such as when they graduate college or turn 30.
- You can pass authority seamlessly to a successor trustee. You can use a trust to plan for any potential incapacity by naming someone to manage your affairs. They can take over automatically if you become unable to manage on your own.
- Trusts are difficult to challenge. Successfully challenging a trust is much harder than challenging a will, though neither is easy.
The drawbacks of using a trust
Trusts provide a significant number of benefits, but they do require a bit more time, money, and energy to set up than simply drafting a will.
- Trusts are more administratively burdensome. For assets to be included in a trust, they must be put into the trust — actual transfer of property titles and deeds must occur or the trust is useless.
- A trust’s purpose is limited. Trusts are focused exclusively on the management and disbursement of assets. You can’t use a trust to name guardians for minors or specify funeral arrangements.
- Creating a trust is more expensive. Setting up a trust involves more work (like transferring assets) than drafting a will. Plus, a trust must be managed once it is created.
- You cannot use a trust to name an executor. You can name a successor trustee, but they can only manage assets included in the trust — not your entire estate, unless your entire estate is included in the trust.
- A trust by itself is not a complete estate plan as often assets can be left out of a trust, and those assets will flow through probate. Having a will as a backup is often recommended.
Will vs trust: how to decide
As you begin the estate planning process, asking yourself a few questions about your expectations can help you decide your next steps.
- Are you prepared to make an upfront expenditure of cost and energy? If you need to get something in place quickly and without spending much money, then a will could be the best option for now.
- Do you qualify for a small estate threshold, meaning you could benefit from simplified probate procedures? Being able to take advantage of a small estate exemption might make the probate process less onerous, meaning you’d knock out one of the big disadvantages of having a will.
- Are there individuals for whom you would need to provide extra care? One of the most important elements of a trust is the ability to ensure continued care for someone who needs it — even after your death.
Assets that you place into a trust will not be included in your will, but having a trust and having a will are not mutually exclusive. For instance, an individual that uses a trust to manage their assets may also choose to create a will that provides for their child’s guardian.
Most people would benefit from creating a will. They are relatively simple and straightforward, and we recommend drafting a will as the bare minimum that each person should do to safeguard their assets and their loved ones.
Some people would also benefit from creating a trust, either because a trust would allow their loved ones to avoid the probate process or because they want to provide extra care for a minor or someone with special needs.
Whether you choose a will or a trust (or both), the most important thing is that you do it — don’t leave an administrative mess for those you love. Our estate planning package is a painless and affordable way to plan for the future. Schedule a consultation with one of our expert team members to find out which is right for you.