If you’re starting to think about estate planning, you’ve probably come across two common methods of passing wealth and belongings to someone else — trusts and wills. However, there are big differences between these two documents, especially when it comes to when and how your assets are distributed.
It’s worth noting that the laws regarding trusts and wills vary by state, so you should consult an estate planning attorney or expert in your state on the specifics. That said, both trusts and wills have some features that remain the same no matter where you live. We break down the main differences between these two legal tools, including who they’re for, how they function, and the types available.
Living trusts vs. wills
What is a will?
A will is a legal document you create that details how you want your assets and belongings to be distributed after you die. Wills can cover everything from who inherits your baseball card collection to who takes ownership of your house.
Generally, wills include:
- An executor. This is the person who’s in charge of carrying out the will
- Beneficiaries. The people you’re naming to inherit items or money.
- Guardians for children. If applicable, you’ll name guardians for minor children.
A will has no effect until you die, explains Mitch Mitchell, product counsel at Trust & Will, and estate planning and probate attorney. “You set up this document, you sign it, but all of the work of transferring the property in line with your wishes is put off until you die,” he says. Property is then transferred to those named in your will through a legal process called probate after your death.
In probate, the court grants someone permission to act for the estate. “The probate process is a court proceeding where a judge is assigned, and someone is appointed by the court directed by the decedent’s will to be in charge of administering the estate,” says Tasha Dickinson, a wills, trust and estates lawyer in West Palm Beach, Florida. In essence, the probate process is how the legal system validates your will and gives the go-ahead to the executor to begin distributing your assets.
Note that there’s a difference between a will (also called a last will and testament) and a living will. While a will directs the distribution of your financial and material possessions, a living will provides instructions for medical treatment if you’re unable to communicate your wishes. While both are legal documents, living wills are focused on your care rather than your finances and possessions. You can have both a last will and testament and a living will — and in many cases, having both is important.
What is a living trust?
A living trust is another estate planning tool that can be used to transfer property and wealth to others. While a will names who things would go to, a trust takes it one step further. “We are going ahead and transferring that property into our trust, the care of our trustee,” Mitchell says. “The administrative work of doing the transfers is done while I’m still alive so that when I die, there’s not that appointment process.”
There are two types of living trusts: revocable trusts which can be changed during a person’s lifetime, and irrevocable trusts, which are often permanent but can come with tax advantages.
In many cases, you’ll include the same assets in a trust that you would a will. “Any asset that can pass under a will can also pass under a trust,” Mitchell says. Many people fund trusts with real estate, non-retirement brokerage accounts, and even life insurance.
Unlike wills, living trusts don’t go through the probate process — a feature that some find useful. In some states, probate isn’t as simple as it can be in others. “California, for instance, has a notoriously difficult and expensive probate process. And so most Californians who have an estate plan have a trust,” Mitchell says.
A living trust can also be useful in more complicated estate situations. “If someone’s a Florida resident and they own property in the state of Pennsylvania, for example, that presents a different problem,” says Dickinson. “Not only would there be a probate in Florida, but there would also be a probate in the state of Pennsylvania.” A living trust can avoid the need for probate in two states.
Pros and cons of a will
If you’re deciding between a will and a trust, there are some notable pros and cons you’ll want to be aware of as you start the process.
Pros of a will
- Affordability. Wills are generally simpler documents and may be more affordable to create because of that fact.
- No need to transfer assets while you’re alive. In a will, possessions are transferred through the probate process after you die.
Cons of a will
- Must go through probate. Not everyone wants their possessions to go through probate. “It’s a court proceeding. So, there’s a judge involved. It takes time, it takes money, it’s public record,” Dickinson says.
- It will become part of the public record. As a part of the probate process, your will becomes a part of the public record and can be accessed by just about anyone curious enough to request it.
Pros and cons of a living trust
Here’s what you should know about the advantages and disadvantages of a living trust:
Pros of a trust
- More privacy. Since the estate never goes through the probate process, only those who are listed in the trust as the grantor, trustee and beneficiaries can see the record.
- Avoids probate. Since trusts can avoid probate, it doesn’t become public record, and can avoid the time and costs associated with the process.
Cons of a trust
- Affordability. It may cost more to create a trust than it would a will. “If you go the traditional route of using an attorney to draft plans, they’re always going to charge more for a typical revocable living trust plan because it’s a bigger document, more words, more complexity,” Mitchell says. It may also require more of their time to set it up. “It’s more expensive for them to assist or to guide you on transferring assets.”
- More complex. While wills are relatively straightforward, trusts can be more complicated to set up.
Who needs an estate plan?
Almost anyone over the age of 18 can benefit from estate planning, Mitchell says. “Everybody should have a plan.”
Having a will can direct those you care about in an already difficult time, and make sure that your belongings and assets are distributed how you’d like. In the case of a living will, it can also direct your care if you’re unable to communicate those wishes.
While there are default laws on who receives what after you die, they vary by state and may not align with your family situation or wishes. Whatever your financial situation, you can benefit from having directions laid out just in case.
While creating a living trust will often require involvement from a legal professional, several services allow you to create estate planning documents online. Fabric by Gerber Life can help you make a will for free and offers guidance on how to make those wills legally binding. Quicken WillMaker & Trust has a 30-day money-back guarantee and offers packages that can fit more complicated financial situations.
