Passing Down Wealth: If You Have a Will, Do You Need a Trust?
Written by
John Csiszar
Edited by
Levi Leidy
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A will has long been known as the cornerstone of estate planning. But a trust can offer more comprehensive and specialized control over your assets, both while you are alive and after you pass away. It can also be a simpler way to transfer assets after your death. But if you already have a will, do you really need a trust?
The answer, as you might imagine, is more complex than a simple yes or no. The size and complexity of your finances, along with any specific needs you may have, can dictate which is the best estate planning tool for you and your family. In some cases, the answer may be both. Here’s a look at the difference between wills and trusts and scenarios in which you may need one or both.
What Does a Will Do?
A will is simply a legal document that specifies where you want your assets to go after you die. A will allows you to assign an executor to your estate and a guardian for your children after you die, if applicable.
A will is an important first step in estate planning because it prevents you from dying intestate, in which the state — not you — will determine how to distribute your assets. It’s also relatively simple and inexpensive to draft.
On the downside, a will still has to go through probate, which is a public court process that anyone in the general public has access to. This public process also means that creditors — and unscrupulous actors — can see exactly where your money is going, and who gets what.
What Does a Trust Do?
Unlike a will, a trust is much more than a simple authorization document. A trust is its own legal entity that can actually physically own assets. This allows it to completely bypass probate. Instead of having your affairs publicly on display through the court system, when you have a trust, you can appoint an executor to make private, direct distributions in line with your wishes. Trusts can also serve a multitude of other needs, from providing financial assistance to special needs children to avoiding income and estate taxes.
The main drawback of a trust, when compared with a will, is that it can be burdensome to set up properly, especially when it comes to titling assets in the name of the trust. A trust can also be much more costly to set up than a simple will.
So, Do You Need Both a Will and a Trust?
Generally speaking, the more complicated your financial situation, the more you should gravitate towards having a trust. And if you have a trust, you should in almost all cases have a will as well. This is because a will can act as a “pour-over” in case any assets are for some reason not included in your trust. Your will can act as a catch-all that still distributes those assets as you intend, rather than having your state decide the matter for you.
You will also definitely want a will if you have minor children, as that is the estate planning tool used to designate custodial guardians. Although a trust can name a guardian, it is usually a will that is assigned this task, while the trust appoints a trustee — often the same person — to manage the assets for the children.
The Bottom Line
According to the experts at Principal Financial Services, there are scenarios in which a simple will is sufficient for estate planning purposes. For example, if you don’t have complicated finances and simply own traditional assets like a home, a car and a retirement account, you may be able to get by with just a will. As you can still distribute your assets and designate beneficiaries with a will, it may be simpler in some cases. But a trust does remove your financial life from the public eye after you die, and it also allows additional financial flexibility as your assets grow.
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