Will vs. trust: What's the difference?

You work hard to provide for yourself and your loved ones, but what happens when you’re no longer able to do so? That's why creating an estate plan is critical to ensuring your wishes are carried out during your lifetime and at your passing.
A comprehensive estate plan involves the creation of multiple documents, but two key ones are a will and a living trust. While these terms are sometimes used interchangeably, it’s important to understand how these documents differ to help ensure accurate distribution of your assets to your heirs following your death and help minimize unnecessary fees and taxes.
What is a will?
A will is a legal document that expresses your wishes about how you want your assets distributed at death and who you’d like to serve as guardian for your minor children or other dependents. In your will, you name an executor (or personal representative) who’s responsible for administering and distributing your estate to your beneficiaries based on the directions in your will. If you die without a will, the courts will oversee the distribution of your assets according to your state’s laws, and the results may not be at all what you had in mind.
However, there are potential drawbacks to relying solely on a will to accomplish your estate-planning goals. For instance, a will typically must go through a probate process in which a court oversees the directives of the will, which can be time-consuming, expensive and ultimately gives the state the power to supervise the bestowment of your will. This also means that a will is public record, meaning the public could learn details about your assets and estate.
It’s important to note that not all assets pass through your will. Some of your important assets, such as proceeds from your IRA, 401(k) and life insurance, will likely pass directly to the beneficiaries you’ve named as beneficiaries on these accounts (unless you've named your estate). In other words, these beneficiary designations can supersede whatever instructions you’ve left in your will, so it’s a good idea to review beneficiary designations and asset titling at least annually to ensure that they’re still accurate.
Another key item to consider is that a will only takes effect at your death. In your will, you name an executor who will be responsible for distributing your assets at your death, but your will does not address how your assets will be managed in the event of your incapacity.
Important note: You’ll need to work with a qualified legal professional to put a will in place.
What is a living trust?
While several types of trusts are available, one of the most commonly used is a revocable living trust. It’s called “revocable” because you, as the person who established the trust (the “grantor”), can change the terms of the trust or terminate the trust as you choose. The other parties involved in a living trust are the trustee, the individual you appoint to oversee the management of the assets in your trust, and the beneficiary, the party for whose benefit the assets are managed.
A properly written living trust offers these main benefits:
- Help your estate avoid probate and the associated privacy concerns of a will becoming public record. Assets titled in the name of the trust should avoid probate because the trust itself is already established as the legal owner of the property. Although executing a living trust requires retitling of assets in the name of the trust during your life, it should be able to avoid the expense and public nature of probate upon your death.
- You can plan for your own incapacity. A living trust allows you to name someone to manage your investments and other trust assets on your behalf if you become incapacitated.
- You can be specific about how your assets will be distributed. You may have some highly specific goals about how you want your assets to be distributed upon your passing. For example, instead of just leaving a lump sum to a child who you believe may not be capable of responsibly handling the funds, you can arrange, through your living trust, to have the money distributed gradually over a period of years.
Establishing a living trust will involve some up-front costs, as you will need to work with a qualified legal professional. You may also need to consult with your tax professional and financial advisor, and you might want to enlist the services of a professional trustee if you don’t know someone with whom you’re comfortable in administering your trust.
Basic differences between a will and a living trust
Overall, some main differences between a will and a living trust can help you determine how each can address your unique needs.
Will | Living trust |
---|---|
Must go through probate | Usually avoids probate |
Probate is open to the public | Private |
Does not account for incapacitation* | Accounts for incapacitation |
Names guardians for minors | Does not name guardians for minors |
Fewer/cheaper fees | More costly (such as attorney fees and annual trust expenses) |
No need to retitle assets | Need to retitle assets |
*A will can be supplemented with financial and health care powers of attorney and a health care directive in the case of incapacitation.
While there are distinct differences between a will and a living trust, the question isn’t whether you should have either a will or a living trust, but whether you should have a will and a living trust based on your unique circumstances. For instance, while most people may need a will to name guardians, not everyone needs a living trust. When evaluating your situation, consider your age, wealth/assets, need for guardians and privacy concerns.
Do I choose a will, a living trust or both?
So, the question remains, do you need a will, a living trust or both? If you haven’t created any estate-planning documents, at a minimum, consider working with an attorney to put a will in place to serve as a foundational document to assign asset distribution at death and name guardians for minor children. Moreover, the process to execute a will is fairly straightforward and does not require a significant investment in time or resources.
Additionally, if privacy and flexibility in how your assets will be distributed at death are important to you, consider creating a living trust. Larger estates, estates with complex assets, blended families or nontraditional families can also benefit from added personalization and legal structures with a trust.
If you decide to use a living trust, you will most likely also have a pour-over will, which transfers any probate assets into your trust via a will, acting as a safety net to help ensure the smooth transfer of assets. It’s important to note that this is a separate legal document that will need to go through probate, resulting in additional costs.
Ultimately, the most important step of creating an estate plan is to start the conversation with an estate-planning attorney, financial advisor and other professionals (like a CPA) to help you develop and execute a plan designed to meet your specific needs. With qualified advisors on your side, you can feel confident in the decision you’re making for your family and your legacy.
Important information:
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.