Most people know that it’s important to create a will. Especially if you have a lot of assets (or debt) to distribute amongst your friends, family, and dependents. However, a lot of people don’t realize that a will actually does very little in terms of protecting your estate and beneficiaries. If you want to protect your assets — not just distribute them — you may need to explore the option of setting up a trust instead. Whether you’re coordinating your legal documents for aging parents, or you’re interested in setting up a will or trust for yourself, you’ve come to the right place.
In this post, we’ll look at the main differences between a will and a trust and help you to understand how they work and if setting up a trust makes sense for your future estate planning.
Which is Better – A Will or a Trust?
Before you say whether a will or trust is better than one or the other, it's important to realize the role each one plays in the estate planning process.
What is a Will?
A will is a legal document that states how you’d like your affairs handled after you pass away. There are many types of wills and knowing each of them is helpful. There’s also another document called a “living will”, which is a statement of how you’d like your affairs handled while you’re still alive, but incapicated or otherwise unable to speak on your behalf.
The person who writes the will (known as the “testator”) will use this document to appoint an executor. Be sure to know what to put in a will so that you’re set up for success from the beginning. This is the person who is responsible for carrying out the wishes set forth in terms of how their property should be divided and who should be a beneficiary.
What is a Trust?
There are many different types of trusts such as a testamentary trust or revocable trust. But when it comes to estate planning, most people will create what’s known as a “revocable living trust.” This is a special type of trust where you retain control of your assets while you’re alive but then they are transferred directly to the trust upon death. From there, the assets may be passed on to your beneficiaries.
What's the Difference Between a Will and a Trust?
While will and trusts might sound similar, there’s one big difference that separates these two legally binding documents:
- Wills must pass through probate.
- Trusts avoid probate.
The probate process is where your estate goes to court and is reviewed by a judge. An estate planning document can be also very time consuming to create. Because of this fact, there are several reasons why a trust is often viewed as more powerful than a will.
3 Reasons a Trust Might Be Better Than a Will
#1 Less Time in Probate
When you have the opportunity to bypass probate, you almost always want to take it. Estates that only have a will may spend months or even years in court before the assets can be distributed to your beneficiaries.
By transferring your assets to a trust, your property is effectively shielded during the probate process. Therefore, this means there will be:
- Less time going to court hearings
- Lower lawyer fees because you don't need a probate attorney
- Reduced time to close the estate and distribute the assets accordingly
#2 Protection Against Creditors or Challengers
Most people don’t realize this, but simply naming someone as a beneficiary in your will doesn’t necessarily mean that they will receive the assets you wish them to have.
For example, if someone were to challenge your will during the probate process (such as a creditor or disgruntled family member), the judge could side with the accuser and give them your assets instead. That would mean potentially leaving nothing to your surviving spouse or family members.
By contrast with a trust, the assets that it holds do not have to be disclosed during probate and cannot be challenged. Therefore, they are free to distribute to your beneficiaries exactly as you’ve detailed in the content of the trust.
Another thing many people don’t know about the probate process is that it becomes public knowledge. That can spell trouble for your survivors in terms of privacy issues.
For example, let’s say you passed away and left $1 million to your granddaughter in your will. This information would become public record and anyone could find it out. Scammers or thieves could then target your granddaughter in an attempt to steal this money from her.
On the other hand, trusts avoid probate. That means no one will know which assets are transferred and who they will go to. This makes setting up a trust arguably a much safer and more discrete approach for bequeathing your wealth.
Can You Have a Trust and a Will?
Of course! In fact, most estate planning attorneys will recommend that you create both a revocable living trust and a will as part of a well-rounded complete estate plan.
When drafted correctly, these two documents can complement one another and form an iron-clad defense for your estate that will have it pass through probate with little to no trouble at all.
What Are the Disadvantages of a Trust?
Despite the benefits that a revocable living trust can provide, they may not necessarily be for everyone. Sometimes a family trust isn't the way to go. Here are a few things to consider before you take your next steps and create a trust:
#1 Trusts Can Be Complicated
Wills are relatively simple documents to create. Knowing how to prepare a will can be helpful. You can file one online or even write one yourself. By contrast, trusts require specific language and steps to make them official. You’ll have to work with a lawyer to make sure you create the right one and that the text contains exactly what’s required for it to be valid.
#2 Trusts Are More Expensive
Because of the complexity and involvement of an estate planning attorney, trusts are much more expensive to create. Whereas a will might only cost $100 to file online, most estate attorneys will charge $1,000 or more to set up your trust. Knowing how much a will costs can help you decide between a trust and a will.
#3 Trusts Have to Be Funded
The only way that a trust works is if you remember to fund it. One mistake some people make after setting up their trust is to forget to designate the trust as the secondary beneficiary of all of their investment accounts and assets. Unless you ensure that you will do this, your assets will not transfer into the trust and no protection will be provided.
Trusts vs. Wills
You’ve worked your whole life to acquire all of the assets you have. Make sure that everything is transferred properly to your loved ones or another beneficiary by using the right tools for the job.
At a minimum, everyone should have a will. However, if you believe you’ll have a significant amount of wealth to pass on, then don’t take any chances and set up a revocable living trust to make the transition to your surviving spouse or other beneficiary designation as smooth as possible.
Whether you decide to go with a will, trust, or even both, you must keep this information handy and ready to share with the people you trust. Rather than hiding these documents away in your filing cabinet, store them on a secure app like Pillar.
Try Pillar for free for 14 days and find out how easy it can be to organize all of your important legal documents into one convenient place.