What is the difference between a Will and a Trust?
Ask a Financial Advisor Newsletter: Chris
What is the difference between a Will and a Trust?
I’ve always assumed that trusts were for Scrooge McDuck or “Downtown Abbey” characters, but then I hear friends talking about putting their houses in trusts. My wife and I own our house but it’s nothing exciting; we both work salaried jobs with good benefits and have good savings, but again, nothing exciting. Our daughter is a toddler and we do have a will. Should we have a trust now? If not now, then when?
-Signed Procrastinator
To use the old cliche, “There are two certainties in life: death and taxes.”
If you don't plan the former properly, the latter becomes a total nightmare. Luckily, there is a whole finance-world built around this - it’s called estate planning. And, like most things in finance, it's full of confusing lingo, random exceptions, and rules that never stop changing. Frankly, it’s perfect bedtime material if you're struggling to fall asleep.
So let's break this down, and dare I say, try to make it fun?
What is a Will?
A Will is essentially a "how-to" guide for dividing up your money, and assets after you pass away. Think of it as the instruction manual for your estate. It’s relatively inexpensive, doesn’t take much time to set up, and helps prevent your loved ones from fighting over your prized possessions. Without a Will, the court gets to decide what happens to your stuff, which may not align with your wishes, so it’s definitely a good idea to have one.
The key difference between a Will and a Trust is that with a Will, your assets remain in your name until they’re passed on. Where a Will falls short is in two key areas. First, after you die, your estate must go through probate (a court process to distribute your assets) which means your heirs will need to hire attorneys to help navigate it. Second, probate can be public, meaning anyone could make a claim on your assets—even if it’s not what you had in mind.
What is a Trust?
Think of a Trust as the grown-up version of a Will. While there are a few types, the most popular is the Revocable Living Trust. It’s a bit more complex than a Will and often used for larger estates, but don’t panic—you don’t need to be a millionaire to make it work. A Trust lets you skip the probate process, keeping your wishes private and within the family (sans drama). If you go this route, please don't forget to actually transfer your assets to the Trust! Yes, it will require more paperwork, but if you want control and flexibility, this avenue is the one for you. Sure, it’ll cost a little more up front, but your future heirs will be sending you thank-you notes once you're gone.
Do I need one?
It’s not exactly the topic for Thanksgiving dinner, but avoiding it probably isn't the best option either. If only there was a place to make this less daunting (RightWise). The reality is estate planning actually makes life easier for your loved ones. Think of it as doing them a solid by making sure your legacy doesn’t turn into a mess they’ll have to clean up. It will get the wheels turning on other important topics as well such as picking guardians for your kids, choosing a Power of Attorney, and setting up a Living Will (your medical care outline). It’s never a perfect time, so here is a nudge to get you going.
Okay, I’m convinced. Is a Will or a Trust better for me?
Welcome to the club! As for your question, allow me to channel an old, irritating friend of mine: "it depends." If just getting your feet wet is the goal, a Will will do wonders for making sure your assets go where intended. If you are willing to put in a little more time and money upfront, a Trust can avoid probate, save legal fees, and offer more asset security when you pass. Each has its perks and pitfalls, but the key takeaway here is simple: start the process and, most importantly, have those conversations.
Author: Chris Casale
Date Published: 11/22/2024
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