A will includes your instructions for who gets your belongings, money, and property after you die, and without one your assets may get tied up in court. A trust is a legal entity that you transfer ownership of your assets to, so the people you chose as beneficiaries can receive assets without any involvement from the court.
Having a trust ensures your assets are handled according to your wishes, but only assets in the trust are covered. A will handles everything that isn't in your trust, and can achieves a few additional things, like letting you name a guardian for your child. Wills and trusts are both solid estate planning tools, and you might actually benefit from having both especially since they tend to work hand in hand.
Difference between a will and trust
Here are a few major similarities and differences between wills and trusts:
Give away property
Enforce terms of the gift
Keep terms private
Change or revoke terms
Name a guardian
Appoint an executor
Protect assets from creditors
Another major difference between wills and trusts are the cost. Trusts are usually more expensive to establish and maintain compared to a will, which you can make on your own without a lawyer. You can generally expect a trust to cost you at least $1,000 to establish if you work with an estate planning attorney. With a living trust you need a trustee to manage it, which could cost money and require extra work, like if the trust earns income, in which case the trust will need to pay taxes.
Do I need a will?
Most people would benefit from having a will. You don't need a will if you have nothing to pass on, but even if you have very little to pass on, a simple will can be useful and inexpensive. Small estates may not need much of an estate plan beyond a will.
If you want certain individuals to receive certain belongings or valuables, then definitely look into creating a will. Without a will, your heirs will be determined by state law and there ,ay be further disagreements that can delay the time it takes for your family members to receive their inheritance. Probate — the process through which a court helps distribute your assets — can be time consuming and costly for your beneficiaries if they seek legal advice or an attorney to help settle the estate.
Here are a some more reasons to get a will:
Wills are an inexpensive way to pass assets to your intended beneficiaries.
Only a will lets you choose a guardian to take care of your minor children.
You appoint an executor in your will to settle your estate when you die.
Intestacy law determines your heirs if you don’t make a will.
Not having a will could potentially cost your heirs a lot of time and lessen their inheritance because of legal fees.
Should I get a trust?
First of all, trusts and trust funds are not just for millionaires. It's true that large or wealthy estates can benefit from creating a trust, but so can people who hold less property, or even just a house.
Ultimately, a trust is just a way to better control how your assets are passed on to your loved ones. (If you create a living trust while you’re alive, you can even disburse money and assets right away.) You can include instructions in the trust agreement for when and how beneficiaries receive the assets, which can be especially useful in providing for any minor children (or irresponsible children) after you pass away.
Since a trust is its own legal entity, the rules for distribution of its assets are essentially set in stone and probate will not affect the trust property.
Benefits of a trust vs will
Consider a trust over a will if you want to avoid probate, because assets in a living trust are distributed by a trustee outside of court in most cases, unlike the gifts you leave for people in a will. A trust can provide other advantages, like protecting your privacy. Wills eventually become part of the public record, allowing someone to see what assets you had, how much they were worth, and who your will beneficiaries were, but the contents and terms of a trust remain private.
Leaving assets for a loved one in a trust instead of a will could save them time and money in probate since trust assets can pass directly to their beneficiaries. (One exception: assets bequeathed through a testamentary trust created by a will must still be probated.) Keep this in mind if you have many assets or if you have many beneficiaries.
Certain types of trusts, called irrevocable trusts, have even more advantages over a will. The grantor (the person who opens the trust) cannot make changes after creation of an irrevocable trust, which can allow them to decrease the value of their estate. This could help if you're trying to qualify for Medicaid or a similar income-restricted program, avoid estate tax, or get asset protection from creditors or anyone else who sues you.
Can I have both a will and trust?
A trust can also work very well in conjunction with a will. One common option is to combine a living trust and pour-over will that instructs the transfer of assets into the trust. Then assets can be distributed from the trust, according to your wishes. Other people choose for their will to include instructions on how to create a trust — called a testamentary trust — and what to transfer to it.
You could create a trust without a will, but you'd almost certainly benefit more from having both. Also remember that only the assets you specifically transfer to your trust are subject to its terms. If you leave anything out, hopefully your will covers it.