The Difference Between a Will and a Trust
Both wills and trusts are methods to transfer an estate to heirs, but there are some key differences between these important legal documents.
December 17, 2021
Regardless of your age, it’s important to plan for your future — and your family’s future once you pass away.
It’s not fun to think about death, but we can make everything much easier for the loved ones we leave behind by planning.
When most people think of estate planning, they think of a Last Will and Testament often called a will. But you may have also heard talk about trusts and their advantages in the estate planning process.
This guide will cover the difference between wills and trusts and the types of wills and trusts to be aware of.
What is a will?
A will is a legally enforceable document that notes how individuals want their affairs and assets handled upon their death.
The primary purposes are to explain to heirs, family members, friends and the law exactly how you want your affairs handled after you pass away.
This includes how you want your assets distributed, who you want to be the legal guardian of your children (if relevant) and even how you want to handle funeral arrangements.
A will typically includes a detailed list of your assets and liabilities, along with instructions on how each asset should be distributed to heirs, family members or charities.
Again, a will is legally binding, and it must be drafted in very specific ways (usually by a lawyer) to be considered valid in the eyes of the law.
Upon death, the surviving heirs will go through probate court, where the details of the will are verified and the assets distributed. In many states, this can be a lengthy process.
Types of wills
Not all wills are built the same. Here are some types of wills you may encounter:
Testamentary will. A testamentary will is the most common type of will, which lays out details about your wishes after death — for your assets, your children and your funeral arrangements.
Holographic will. A holographic will is a more casual will written by the testator rather than a lawyer. Some states don’t recognize holographic wills.
Oral will. An oral will is a will spoken aloud rather than written down and signed. It’s sometimes used when someone is close to the end of life and doesn’t have a will in place.
Pour-over will. A pour-over will enables any remaining assets to be transferred to a previously established trust.
Living will. A living will addresses how your future medical care should be handled; it doesn’t establish guidelines for assets after death.
What is a trust?
A trust is a fiduciary agreement that enables a third-party trustee to hold assets on behalf of the beneficiaries. Trusts can be arranged to provide specific details on when and how the assets will be distributed.
The trustee is appointed to hold and manage the assets. They have a fiduciary responsibility to act in the best interests of the trust’s beneficiaries.
The trustee appointed could be an individual or a company; either way, they’re legally required to follow the directives laid out in the trust and act in the beneficiaries’ best interest.
The trust establishes all the guidelines ahead of time. This allows for clear directives and allows families to avoid probate court in most cases.
This is one key difference between will and trust processes. An estate handled by a will must go through probate court most of the time, while most trusts don’t.
Types of trusts
Depending on your needs, you may choose one of several different trusts:
Revocable trust. A revocable trust is created during the lifetime of the trustmaker. It can be changed or revoked at any time.
Irrevocable trust. An irrevocable trust is just the opposite; it can’t be altered once established.
Charitable trust. A charitable trust allows certain benefits to go to charity and certain others to your heirs.
There are many other types of trusts — this guide covers them all.
Will vs. trust
Will or trust, which is better? There are several important considerations here.
Wills and trusts are ways to pass generational wealth along to heirs, loved ones or nonprofits.
However, there are some key differences between a will and a trust. Here are the most significant differences to keep in mind.
Trusts typically avoid probate court
When someone dies with a will in place, most states require that families go through the probate court process. This can be a lengthy court process, and wills can be challenged by heirs or family members, which can cause probate court proceedings to drag on even longer.
The will’s executor must attend probate court hearings, often taking 6 to 18 months.
Probate court is expensive, as well. In California, probate costs and lawyer fees could easily take up to 2 to 4% of the estate’s total assets.
Trusts, on the other hand, typically avoid probate court. By default, wills go through probate court — and by default, trusts don’t.
Trusts cannot name guardians for children
Trusts deal with financial assets only, while wills can appoint guardians for minors. If you have young children, you should have a will in place to assign guardians for your kids.
Note that you can have both a will and trust. The trust can be responsible for most of your assets, and will can lay out other important wishes upon death. If you’re asking, “do I need a trust or a will,” the answer in many cases might be both.
Wills are public record; trusts aren’t
The contents and details of a will become public record once the individual passes and the will goes through the probate court. This means that details of your assets will be publicly available in court records.
Trusts, on the other hand, are private by default.
Trusts are more expensive to set up and maintain
Trusts are complex, and can therefore be fairly expensive to set up. Hiring a lawyer to build your trust will often cost $1,000 or more, and potentially much more for large or complex estates.
Wills are simpler documents, and can even be made online.
A final word on wills and trusts
Both wills and trusts may have a place in your estate planning process. It’s wise to work with a qualified attorney or estate planner to help you craft the right plan for your specific situation.
When planning for your financial future, one important step is to ensure that your debt is under control. If you have credit card debt to pay off, check out Tally†. Tally is a personal finance app that helps qualifying Americans potentially pay off their credit card debt more efficiently.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.