Thinking about the end of your life is no fun for anyone, but at some point, everyone will need to plan for this time. The best way to ensure that your wishes are followed and your family is taken care of after your death is to establish an estate plan.
Two of the most common estate plans are wills and trusts. Chances are, you’ve heard of both, but unlike popular belief these terms are not interchangeable. A will and a trust are entirely different in how they cover your estate, and each has their own misconceptions.
Just mentioning them probably brings up several questions, such as:
- What’s the difference between a will and a trust?
- If you have a trust, do you need a will?
- Do you need a will if you have a trust?
Luckily for you, we’ll answer all of those and more as we work to break down the question, “If you have a trust, do you need a will?” in particular. But first, you need to understand the differences between a will and a trust.
What’s the Difference Between A Will & A Trust?
When deciding whether you need a will, a trust, or both, it certainly helps to define and compare the two to know what functions each performs. But before you proceed at all, you should know that no matter if you are a person of wealth or modest means, you have an estate. And if you worked hard over your lifetime to earn and save your money, you’ll want to be able to control what happens to your assets when you pass away. Your estate plan will determine what happens to your assets and can consist of planning documents such as either a will, a trust, or both.
What Is A Will?
A will is a written legal document that is signed by a witness to give instructions on how your assets will be distributed after your death. When you have created a valid will, it makes the probate process, which is the distribution of your assets, go much more smoothly than if you were to not create one. You can amend your will at any time during your lifetime.
Known more formally as your “last will and testament,” a will does much more than just decide who in your family is going to get what you leave behind. Beyond allocating your property, your will can also choose someone to execute the wishes you’ve outlined in the will (known as an “executor”) and even ask for court supervision to make sure your designated “executor” follows the guidelines you’ve set. It can also name a guardian for your children, and even select beneficiaries for your property.
There are a few things here to keep in mind.
First, in regard to appointing a guardian for your children should you pass away — the person(s) you appoint are not guaranteed. The court needs to affirm your nomination for a guardian, and although it rarely occurs, it can reject your pick. It’s also important to note that once you pass, your will becomes public information.
Your will is not made official until you die and a probate proceeding is filed to confirm the validity of your will. A common misconception with wills is that they allow your family to avoid the probate process, but this is false. Having a will makes probate easier, but it cannot be avoided.
The person you designate as the executor of your will is required by law to administer your estate properly. This is a role that comes with a lot of responsibilities, and if they fail to follow the will according to your wishes, they will be held liable for any harm they cause. The executor must give notice to all known creditors mentioned in your will and is required to publish any unknowns in the local newspaper. The executor also must file an inventory of your assets, which will become part of the public record.
Your will should be prepared by an attorney, as making one yourself or online won’t have a witness signature and may not be honored in a court. The will can also be contested, in which case your estate will be placed under court supervision until the lawsuit is settled.
What Happens If You Don’t Leave A Will?
If you don’t leave a will, there are heirship or “intestate succession” provisions built into state statutes that will determine who inherits your assets. These can vary widely from state to state, but your assets will typically go to your nearest relatives. The process can be tricky if there are second marriages or blended families involved.
What Is A Trust?
A trust is a different way to transfer over your assets, and unlike your will, you can actually begin and manage your trust while you’re still alive, whereas your will only goes into effect after you pass. But just like a will, a trust is a legal document that controls what happens to your property when you die.
While you are alive, you will manage your own assets as the grantor and trustee, then pass them on to a trustee of your choice upon your death or incapacity. By managing your trust while you are still alive, you can actually plan for the possibility of your own incapacity, and control what happens to your property after you have passed away. It’s a fluid process that will require active management if you choose to control your own trust. After you pass, the successor to your trust will then manage your estate. You can also use a trust to manage your property.
There is no court intervention required by a trust, meaning there is no probate proceeding involved. Your trust will not become a part of the public record when you die. This helps avoid some of the publicity, expense, and inconvenience that comes with court-supervised distribution.
The most common misconception about a trust is that they are only for the wealthy; however, this is not necessarily true. A trust can be used for any size estate, and while a trust is more expensive to set up than a will, this is because it must be actively managed once it is created.
While they aren’t just for the wealthy, it is true that a trust is actually useless if it is not funded. Only those assets that have been placed within your trust can be controlled by it. The trust won’t be of any benefit to your family if you have not transferred any assets or funds into it before you die, and your estate will still end up going into probate and may be subject to significant tax issues.
Like a will, you’re best off setting up your trust with an attorney, who will help you choose a trustee to take over the trust when you die or are no longer able to manage it. They will also help you set up the legal documentation that manages the trust.
We’ll get into which is better for you in the next topic, but it will all depend on your individual circumstances. Trusts can be practical and useful for some people, while for others it may just be a waste of time and money.
Why Would Someone Choose A Will Over A Trust, Or A Trust Over A Will?
There are certainly advantages to each, but as you’ll see later, they might operate best in tandem.
Some people choose a trust over a will because of the fact that trusts aren’t subject to probate proceedings as long as all of your assets are held within your trust. This means everything isn’t out in the open, and your assets and financial records won’t become public record. There is no court supervision needed if disputes arise either — your successor trustee will manage it all.
A will is going to almost always be less expensive to prepare than a trust and is done when it’s done, while your trust will change as your life goes on. This means the ongoing developments to your trust will come with additional expenses.
Because you manage your trust while you’re still alive, you can continue to transfer your estate into your trust over time. However, anything you leave out will go into probate unless you arrange for them to go into your trust upon your death. People sometimes choose a trust over a will because you can make provisions to your trust for your estate if you become incapacitated, while your will cannot, unless via power of attorney. Trusts typically are much more specific in these matters, however.
With a will, you can name a guardian for your children, but with a trust, you can choose someone to manage the assets you’ve set aside for your children until they come of age. This is one of the main reasons some people have a will in addition to a trust.
There are several factors to consider when choosing between a will and a trust in addition to those listed above, including your location, your assets, your beneficiaries, taxes, your financial situation, and how much you trust the person you will appoint your trustee. For all of these reasons, it is best to form your will or trust with the help of an attorney.
If You Have A Trust, Do You Need A Will?
You should absolutely choose at least one, as the state would assume control of your assets and distribute them as it sees fit if you don’t, but there is also reason to have both.
To make sure your assets go to the intended loved ones, you can include a trust with your will. Because a trust only covers assets you have transferred into the trust, a will can be a good backup in case anything slips through the cracks. This can help ensure that any property acquired late in life goes to your loved ones. As mentioned above, only a will allows you to name a guardian for your minor children, which is why having both is the best course of action if you have children.
You are also able to include a trust within your will that provides instructions for how and when your children will assume control of your assets. Your trust can even distribute your property or assets to a beneficiary or beneficiaries (most often your children) before you die.
So if you have a trust, you don’t need a will, and vice versa, but you can indeed have them in tandem, and it may be the best plan for your estate depending on your situation. It all depends on your individual circumstances.
Pure Financial Advisors, Inc. is not in the business of providing legal advice and/or services. Because our Financial Planners are knowledgeable in estate planning matters, they may at times give general directions as to what estate planning services should be considered. As such, the following should not be construed as actionable legal advice. You should consult with an experienced attorney, preferably with a “Certified Estate Planning Specialist,” before taking any action.