Will or Trust: Which One Do You Need?

Here’s how it usually goes. Your friend’s mom passes away, and 3 months later your friend is stuck in the probate court system, trying to grieve her loss while going through a public and cold process. When you hear a story like that, you feel something inside of you wake up. “I need to take care of myself.”

Then you decide to find out if you need a will or a trust, and the terms begin to blend together, will, trust, probate, executor, and you throw up your hands and load the dishwasher again. I think I’m getting that feeling. So, I’m going to explain both, the way I’d to my own sister. Once you understand what each one does, picking the correct option becomes much easier.

What a will does in basic terms

A will is a written document stating who receives your assets and property upon your passing. It also performs two additional functions: naming guardianship for any minor children (if applicable), and naming an executor, the individual you choose to carry out your wishes.

The problem with a will for most families: a will won’t protect you from having to go through court. Upon death, the will enters probate, where a judge verifies the authenticity of the document and pays off any outstanding debt before distribution to heirs. Probate can last for many months, sometimes years, and you’ll incur charges during this time.

What a living trust does and why it avoids the judge

A living trust is a type of agreement created by you while you’re healthy. Assets such as a home or investment accounts are transferred into the trust. Usually, you establish yourself as the trustee so that there’s no disruption to your day-to-day activities. You continue to spend, sell, and administer them just as you normally would.

Upon your death, the people you designated as successors become the trustees and transfer ownership of your assets directly to those you chose to receive your inheritance. Usually, no judge is involved in the process. One advantage that a plain will has a hard time replicating is setting the exact timing, for example by year, that each person inherits.

Differences to weigh up

There are a few key areas where these options differ in significant ways. Consider each of these aspects in comparison to your own lifestyle. About probate, a will goes through probate and usually doesn’t avoid probate. Trusts generally do avoid probate, which can result in savings for your loved ones due to months less spent waiting and potentially thousands of dollars saved in legal fees. Privacy: probate documents are public records, so a curious neighbor can discover what you left behind and to whom, while a trust stays private. Cost and effort beforehand: simple will creation is significantly less expensive and quicker ($500 to $1,000) compared to creating a trust, which requires a lawyer ($1,000 to $3,000 or more) and includes transferring titles of all your assets into the trust. Timing control over inheritance: a trust lets you arrange for a child to receive money at age 25 and again at age 30 as opposed to receiving all funds at one time via a will. Incapacitation: a trust continues to function even if you can’t manage your financial affairs due to illness because another trustee can take over for you. A will does nothing until after your death.

Is a plain will enough?

You don’t necessarily require a trust to put your affairs in order. Many women are content with using a will along with designating beneficiaries to complete the task of organizing their estate, and they can quit worrying about it. A simple will could be sufficient if your estate is relatively small, your desires about distribution are uncomplicated, and you’re comfortable with your family waiting out the probate period. However, if your estate is large, if you have property located in multiple states, if you have a child with special needs, or if you wish for the entire process to remain completely confidential and rapid, then a trust earns its increased cost.

So, which one do you need?

Most people begin with a solid will and add a trust as needed based on their changing circumstances. The biggest mistake most of us make is choosing neither option. Choose the one that best suits your current situation, sign it, and enjoy that subtle feeling of calm that comes from knowing your estate is organized.

What neither document controls

There’s a catch to this that most people don’t see coming, and it’s of greater consequence than the will-versus-trust debate. In some cases, your most valuable holdings will have no regard for either of those papers. Take a retirement plan or a life insurance policy: they go to the person on the beneficiary form, period. That designation trumps what’s in your will. You’ll find the same with bank or brokerage accounts set up as payable or transfer on death, as well as any co-owned property with right of survivorship; in those instances, the asset simply goes to the one who’s left.

The one hour that will do the most for you in this process isn’t with an attorney. It’s the time put in to go through every account and see whose name is on it. The trouble usually lies with some of those older forms; a beneficiary designation made before a divorce or a death, for instance, is what the institution will honor. Make sure to review them, put in any changes to bring them in line with your current intent, and put down a backup beneficiary as well.

What probate actually involves

The term probate gets thrown around with little explanation, and in doing so it takes on a more ominous, hazy quality. In reality, it’s simply the means by which the court sees to the affairs of an estate. A will is put before the court for a judge to approve, after which the executor makes a list of assets, gives notice to any creditors, and makes sure all debts and taxes are taken care of. What remains is then handed over to the beneficiaries.

Families have a couple of reservations when it comes to the process. For one, it’s a long haul; if the estate is anything but straightforward or there’s an objection, it can run for months or more, with assets in limbo in the meantime. Then there’s the matter of it being out in the open, anyone with an interest can see the filings. And there’s another detail to be aware of: if you have property in a different state, that usually means opening up a probate case on its own. It’s what makes a trust so appealing to those with a second home.

A trust only works if you actually move things into it

Few errors in this field are as costly or as frequent as the one we see here. A trust, for all its value, is only as good as what has been put into it. The document on its own doesn’t carry any weight. It has jurisdiction over assets that have been properly moved under its name: you must retitle your home’s deed, put investment accounts in the trust, and make sure the same is done for any other holdings you want to be part of it. In the legal world, they refer to this as funding the trust.

Leave that out and you put your family in a bind. They’ll be on the hook for the cost of the trust, only to have to wade through probate for any of your assets that are still in your name. A good way to be sure is to put in an hour or two with your paperwork and see where the titles stand. I’ve gone into this some more, as well as the value of a backup will to cover any oversights, in why you still need a will even with a trust.

The papers that matter while you are still here

Mostly, a will and a trust are concerned with the time after you’re gone. They don’t, however, cover what to do on the much more common occasion when you’re still here but can no longer see to your own business, be it from a stroke, an accident or some protracted illness. There are two other papers for that, and they tend to be put in place at the same sitting.

Put simply, a durable power of attorney is for your finances. The “durable” part means it holds up even when you’re in no position to be making calls. Then there’s the health care proxy for medical choices, and the living will to put on paper what kind of care you want or don’t want as time runs out. Do without these and you leave your family to go before a judge to get the standing they might have been handed in the first place. It’s an unnecessary hassle, costly and very public, when they can least afford it.

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