Who Needs a Trust Instead of a Will?

10/2024

Creating an estate plan can protect your loved ones and establish your legacy. With an estate plan, you can provide for your loved ones after your death, transferring to them such assets as your home, vehicle, bank accounts, and personal possessions, including sentimental items.

An estate planning attorney can assist in structuring your plan to ensure your wishes are followed. They also are experts in creating legal documents that will transfer your hard-earned wealth as seamlessly as possible to those you love.

This process can include establishing a will and, in some cases, a trust. While simple estate plans may just use a will, more complex plans may benefit from also employing a trust.

Whether you need a trust instead of – or in addition to – a will depends on your circumstances, such as the size of your estate and your personal goals.

What Is a Will?

For many, making a will is a vital first step toward creating an estate plan. A will, or last will and testament, is a legal document that establishes who will receive your estate – everything you own – when you die. Your estate can include your home and other real estate, cars, savings, investment accounts, business interests, and personal belongings.

Generally, a valid will must be in writing. In most states, the person making the will, known as the testator, must sign it along with two witnesses.

With a will, you can leave your estate to just one person or divide it among multiple beneficiaries. For example, someone with three children might wish to divide their estate between them, whereas another person might intend to leave everything to their spouse. Or perhaps you plan to leave your wealth to your favorite charitable organization.

A will also allows you to name successor beneficiaries. These individuals will receive your money and property if your first beneficiaries pass away before you.

You can use your will to leave specific or sentimental items to certain individuals. For example, a grandmother might leave her favorite grandchild a piece of heirloom jewelry. Specific bequests can help your loved ones feel recognized and remembered.

In your will, you can also name guardians for minor children, should you ever become incapacitated. Rather than leave decisions about guardianship up to a court, you can ensure that you have more control over what happens if you die suddenly or suffer a severe illness or injury and can no longer manage your own affairs.

In addition, your will allows you to appoint the person you would like to be in charge of winding down your affairs after you pass away. Your state may refer to this individual as a personal representative or executor.

The person you nominate to serve in this role will be responsible for locating and collecting all assets of your estate, paying final expenses and any debts, filing tax returns, and ensuring your assets are distributed as specified in your will. Your executor can be a family member, attorney, or other trusted individual.

Despite the many advantages of making a will, only a third of Americans have a will or other estate planning documents, according to Caring.com’s 2024 Wills and Estate Planning Study. When someone dies without a will, they pass away intestate. State intestacy law – rather than the individual themselves – would then determine who inherits what the individual owned.

Understanding Trusts

A trust is a more complex and versatile legal arrangement that you can also use to pass your wealth on to your loved ones. A trust works by having an individual or entity, called the trustee, hold assets for the benefit of someone else, known as the beneficiary. The grantor, the person creating the trust, can tailor how they would like the assets in the trust to be distributed.

Many people who use a trust in their estate planning also have a pour-over will. This protects the individuals’ wishes should the trust not encompass the full estate.

Avoiding Probate

Trusts are useful because they can help avoid probate – the often lengthy and costly legal process of administering an estate after someone dies. When an estate reaches a certain value, the probate court oversees the process by which the beneficiaries receive the deceased’s assets.

Probate can have numerous downsides for loved ones. They may face potentially high legal fees or a delay in receiving their inheritance. The probate process opens the door to challenges as well. Disgruntled family members may try to claim that the will is invalid in an effort to receive a greater portion of the estate.

Probate also raises privacy concerns, as wills become public record; trusts, in contrast, do not.

Other estate planning tools can also help avoid probate. Transfer-on-death deeds allow individuals to name someone to receive their home when they pass. Payable on death accounts also allow for pre-probate wealth transfers.

Other Uses for Trusts

Trusts come in many types, serving different purposes. Some are designed to help reduce federal estate taxes. Others protect public benefits for a loved one with a disability.

Some people establish trusts to organize their finances and plan for retirement or long-term care. For example, you can use certain types of trusts, known as irrevocable trusts, to transfer assets before your death. This can prove vital for individuals planning to seek government assistance in the future. Medicaid Asset Protection Trusts (MAPTs) are one example of such a trust.

Individuals with children might use a trust to provide the next generation with financial stability. With a trust, parents can impose safeguards to keep their children from spending their entire inheritance at once. Another tool, known as a testamentary trust, helps keep trust assets safe from creditors if, for instance, the grantor’s heirs are in debt.

Deciding Whether to Have a Will, Trust, or Both

Creating a will is a fundamental part of estate planning. Most people should have this document in place, even if they also use a trust, because it acts as a safeguard. Compared with a trust, a will is simpler and less expensive to set up. Work with a licensed attorney who can help you ensure that your will is valid.

Those with more complex needs, blended families, or grantors with a beneficiary who has special needs may wish to incorporate a trust into their estate plans. As explained above, this can also help them avoid probate.

Keep in mind that you may need to pay fees on an ongoing basis to maintain a trust. Many employers offer legal insurance as a benefit, which may help cover the cost of setting up this document. Either way, people with larger, more complex estates may find that the costs of establishing a trust outweigh the costs of probate.

Work With Your Estate Planning Attorney

Each person’s situation is unique. Whether a trust could be beneficial will depend on your family’s personal circumstances and financial goals. Your estate planning attorney can help you create a customized legacy plan, which may include executing a will, trust, as well as other estate planning documents.