Wills vs. Trusts: Which Is Right for You?

What Is a Will?

A will is a document that allows you to name beneficiaries for your assets after you die and appoint guardians for any minor children or pets you leave behind. Creating a will is a relatively simple, inexpensive task that you can do on your own or with the guidance of a financial advisor or estate planning attorney. Wills offer flexibility in asset distribution, and you can easily modify or revoke them as needed throughout your life.

Wills are executed through probate, a formal legal process that determines the validity of the will and ensures assets are distributed correctly to the intended beneficiaries. A will enters the public record once it is executed, giving anyone the ability to access information in your will about your assets, beneficiaries, and debt after your passing. This is less than ideal for high-net-worth individuals who value their privacy and the privacy of their loved ones.

What Is a Trust?

A trust is a legal arrangement for the transfer of asset ownership during your life that allows you to set aside assets to be distributed to beneficiaries after your death according to the terms you set. When you fund a trust, you relinquish ownership of the assets to the trust. When establishing your trust, you will appoint a trustee to hold the assets on behalf of the beneficiaries and oversee the distribution of the assets. Assets held in a trust bypass probate court, and information about the trust is not in the public record, allowing asset distribution to be done discreetly.

There are multiple types of trusts, and each offers unique benefits and drawbacks. Two of the most used types are irrevocable trusts and revocable living trusts. If you use an irrevocable trust, this transfer of ownership cannot be reversed, providing the added benefit of asset protection during your lifetime for assets you intend to leave for your children or other beneficiaries. Assets held in an irrevocable trust cannot be taken in a lawsuit or seized by creditors. Furthermore, assets in an irrevocable trust are considered completed gifts and are typically not included in the grantor’s gross estate. Alternatively, if you use a revocable living trust, you forgo the added asset protection but maintain the flexibility to update the trust’s assets, beneficiaries, and terms as needed over time. This is a key benefit for many people because relationships and financial situations evolve over time, and you may want to reflect those changes in your estate plan by adding or removing beneficiaries or by adding, removing, or modifying terms and stipulations.

Although a will allows you to name beneficiaries for your assets, a trust gives you more control by allowing you to set terms for how, when, and to whom your assets will be distributed. This added control can be especially attractive for high-net-worth individuals with large, complex estates. With a trust, you can specify the timeline for when assets should be distributed, staggering the release over years or decades rather than giving the entire inheritance in one lump sum. This can be useful to aid young adults in managing their inheritance wisely. You can also set terms that require the beneficiaries to meet certain lifestyle requirements before receiving the assets, such as setting aside assets to be distributed only once the beneficiary has graduated from college or only if the beneficiary has met with a financial advisor to establish a plan for managing the money effectively. If you want to financially provide for a loved one but doubt their ability to manage their inheritance well, incorporating specific conditions for how and when the assets will be distributed can help alleviate your concerns.

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