As an estate planning attorney, one of the questions I am asked most often is, “Do I need a Will or a Trust?”
The answer depends on your circumstances, your goals, and how you want your assets handled during your lifetime and after your death. Although Wills and Trusts are both important estate-planning tools, they serve different purposes.
What Does a Will Do?
A Last Will and Testament is a legal document that takes effect at your death and directs how certain assets should be distributed.
A Will can:
Identify who should receive your property;
Name an executor to administer your estate;
Nominate guardians for minor children;
Provide instructions for certain personal and financial matters; and
Establish testamentary trusts for beneficiaries when appropriate.
A Will primarily controls assets that are subject to probate. Probate is the court-supervised process of administering a deceased person’s estate. Assets with payable-on-death beneficiary designations—such as life insurance and many retirement accounts—typically pass directly to the named beneficiary. Likewise, property owned jointly with rights of survivorship passes to the surviving owner.
A Will does not avoid probate. Assets owned in your individual name that do not have a designated payable-on-death beneficiary must be administered through probate.
What Is a Trust?
A Trust is a legal arrangement in which a trustee holds and manages property for the benefit of one or more beneficiaries. A trust can be created during your lifetime or established to take effect after your death.
One of the most common estate-planning trusts is a revocable living trust. With a revocable living trust, you can create the trust during your lifetime, transfer assets into it, and serve as your own trustee. You continue to use and control the property and can amend or revoke the trust during your lifetime.
A revocable living trust can:
Allow you to manage and control your assets during your lifetime;
Provide for someone to manage your trust assets if you become unable to do so;
Allow your successor trustee to administer and distribute your assets according to your instructions after your death; and
Allow trust assets to be administered privately, outside of probate.
Remember: probate is a public process; trust administration is typically private.
The most important part of a trust, however, is funding it. You must take steps to ensure that the assets you want the trust to control are properly titled in the trust’s name or that the trust is properly designated as a beneficiary. Think of the trust as a safe: it is empty until you put something inside it.
So, Which Is Better?
There is no universal answer. For some people, a Will-based estate plan may be perfectly appropriate. For others, a trust may provide significant advantages, particularly if you own real estate, want to provide for beneficiaries over time, have minor or financially inexperienced beneficiaries, or want someone to manage assets for you if you become unable to do so yourself.
The Bottom Line
Think of a Will and a Trust as different tools in your estate-planning toolbox. Neither is automatically “better” than the other. Ultimately, the right estate plan is the one that fits your family, your assets, and your goals.
Disclaimer: This article provides general legal information. The actions described should not be taken without first consulting your attorney and/or tax professional.