A Will or a Trust: Do You Need One or Both?

I receive a lot of questions about Wills and Trusts and why someone might need one versus the other. Like anything in financial planning, it depends! Lucky for you, this blog will define each, explain the differences between them, and some things you will want to consider when choosing between these documents so you can make an informed decision for both you and your loved ones.

What is a Will?

A Will is essentially a final “letter” that upon your death, outlines the distribution of your personal property, names an executor for your estate, and if applicable, a guardian for your minor child(ren). Please understand that investment accounts, bank accounts, and life insurance policies that have a named beneficiary or TOD (transfer on death) designation will go directly to the person or entity without the direction of a Will. One downfall is that a Will must go through probate court to authenticate it, designate the executor, pay final debts, file taxes, and locate the beneficiaries in order for the property to be distributed. As you can see, this can be both lengthy and costly, depending on the state.

What is a Trust?

In its simplest form, a Trust is a legal entity that holds your assets (while living or at death) and you can get more specific on how assets are to be distributed and when. This could be a home, a car, collectibles, or even a life insurance policy. Trusts are also separate entities, so they are taxed differently (more on that another day). A trustee controls the assets for the benefit of the beneficiar(ies). Sounds fancy, but you do not have to be rich to have or need one. They should, however, be created with an attorney and may cost you up to a few thousand dollars. However, unlike a Will, a Trust does not go through probate court and will save your beneficiar(ies) in time, estate costs, and court fees later.

Do You Need a Will?

The short answer is, probably. If you do nothing else, get a Will, otherwise you are leaving the distribution of your property up to the state in which you live. I should also mention that you can disinherit a family member in a Will. Very importantly though, if you have minor children, a Will allows you to specify guardianship for them upon your passing. On the other hand, if you are single with no children and do not have many assets or own property, having a simple Will may do the trick. However, keep in mind that a Will is public record and can be contested, which can further complicate the process. If you prefer to keep your affairs private and want more control, read on about a Trust.

Do You Need a Trust?

Maybe. If you want more control over the distribution of your assets, such as Child #1 receives $x at age 18 if they get straight A’s (you can get VERY specific!), prefer to keep your affairs private, and your heirs out of probate court, a Trust may be for you. A Revocable Living Trust is a living, breathing document that can be changed throughout your lifetime. The Grantor creates the Trust, the Trustee manages the assets within the Trust, and the Beneficiar(ies) are the recipient(s) of the property within the Trust. They can be the same or different people. A perfectly written Trust, however, is useless unless you fund it, which means retitling assets into the name of the Trust. Please do not skip this step!

Final Thoughts

Once you determine which documents are right for you, I strongly recommend you consult with an attorney who is experienced in estate planning. Also, if you have a Financial Planner, it is a good idea to involve her in the process as well. She understands not only your estate plan, but your other goals and can work alongside an attorney to ensure your wishes are laid out according to your plan. And yes, this can be costly and sure, you can find some templates online to draft a Will and save some money, but keep in mind these documents will be scrutinized by a court and if not drafted correctly, invalidated, leaving your heirs with a mess to sort through. One last note, check your employee benefits at work. Some employers offer a Legal Plan for a fraction of the cost. You will have access to attorneys for a variety of legal issues.

Whether or not you need a Will, a Trust, or both is up to you, but you DO NEED an estate plan. It is an important part of everyone’s financial plan. While the topic is never easy to discuss, it will save everyone time and money when the inevitable occurs. Also, I would be amiss not to mention that a full estate plan should include additional documents, such as healthcare directives and powers of attorney, but as mentioned earlier, a Financial Planner and an Estate Planning Attorney can help. Leave a legacy you can be proud of!