Wills and Trusts Explained: Choosing the Right Tools

Wills vs. Trusts: What's the Difference?

Both wills and trusts transfer your assets after death. But they work very differently.

Understanding Wills in Depth

What a Will Does

• Names beneficiaries for your assets
• Names an executor to manage the process
• Names guardians for minor children
• Specifies funeral wishes
• Handles assets without beneficiary designations

What a Will Doesn't Do

• Avoid probate (wills go through probate)
• Provide incapacity planning
• Keep things private
• Take effect before death
• Control assets with beneficiary designations

The Probate Process

When you die with a will, it must be "probated"—validated by a court.

Probate involves:

1. Filing the will with probate court
2. Notifying heirs and creditors
3. Inventorying assets
4. Paying debts and taxes
5. Distributing remaining assets
6. Closing the estate

Probate drawbacks:

Probate isn't always terrible:

• Small estates may have simplified procedures
• Some states have efficient probate
• If assets are straightforward, it's manageable
• Cost and time vary significantly by state

Types of Wills

Simple Will:

• Basic document
• Names beneficiaries, executor, guardians
• Works for straightforward situations
• Goes through probate

Pour-Over Will:

• Works with a trust
• "Pours" any assets not in trust into the trust at death
• Catch-all for things missed
• Still goes through probate for poured assets

Testamentary Trust Will:

• Creates a trust upon your death
• Common for leaving assets to minor children
• Trust doesn't exist until you die
• Entire will goes through probate first

Understanding Trusts

What Is a Trust?

A trust is a legal entity that holds assets for beneficiaries. Think of it as a container with rules.

Three parties in every trust:

1. Grantor/Settlor: Creates the trust (you)
2. Trustee: Manages the trust (can be you)
3. Beneficiary: Benefits from the trust (can also be you)

Revocable Living Trust

The most common estate planning trust.

"Revocable" = You can change or cancel it anytime "Living" = Created while you're alive (not in a will) "Trust" = Legal entity holding assets

How it works:

1. Create the trust document
2. Transfer assets into the trust
3. You remain trustee (control everything)
4. You're the beneficiary during life
5. Trust names successor trustee and beneficiaries
6. At death, successor takes over
7. Assets distribute per trust terms
8. No probate needed

During your life, nothing changes:

• You control all assets
• You can buy, sell, change anything
• Your tax returns stay the same
• No separate tax ID needed (while you're alive)

Funding Your Trust

Assets to put in a revocable trust:

• Real estate (via new deed)
• Brokerage accounts
• Bank accounts
• Business interests
• Personal property of value
• Vehicles (sometimes)

Assets that shouldn't go in trust:

• Retirement accounts (use beneficiary designations)
• life insurance (use beneficiary or ILIT)
• Health Savings Accounts
• Vehicles (in some states—check locally)

Assets that can name the trust as beneficiary:

• Life insurance
• Retirement accounts (with consideration)
• Annuities

Irrevocable Trust

"Irrevocable" = Generally can't be changed once created

Why give up control?

• Estate tax savings
• Asset protection from creditors
• Medicaid planning
• Special needs planning
• Life insurance ownership

Types of irrevocable trusts:

Will vs. Trust: Side-by-Side Comparison

When You Need More Than a Will

Strong indicators for a revocable living trust:

1. Property in multiple states

   • Without trust: probate in every state
   • With trust: one administration

2. Privacy concerns

   • Wills are public record
   • Trust contents stay private

3. Complex state probate

   • California, Florida, NY especially
   • Probate costs can be 5-7% of estate

4. Blended families

   • Clearer than relying on spouse
   • More control over timing and distribution

5. Incapacity planning

   • Trust allows seamless management
   • Successor trustee takes over smoothly

6. Significant assets

   • Generally $500k+ in non-retirement assets
   • Or complex asset mix

7. Minor or irresponsible beneficiaries

   • Trust can hold and distribute over time
   • Protects from poor decisions

8. Business ownership

   • Smooth succession
   • Privacy for business affairs

Testamentary Trusts: Middle Ground

A testamentary trust is created by your will and comes into existence at your death.

Common uses:

• Leaving assets to minor children
• Protecting spendthrift beneficiaries
• Staggered distributions (ages 25, 30, 35)

Example language: "My assets shall be held in trust for my children. Distribute 1/3 at age 25, 1/3 at age 30, and the remainder at age 35."

Testamentary trust drawbacks:

• Still goes through probate first
• No incapacity planning
• Less privacy than living trust
• Court oversight may be required

Special Situation Trusts

Special Needs Trust

For beneficiaries receiving government benefits (SSI, Medicaid).

The problem: Inheritance can disqualify them from benefits they need.

The solution: Special needs trust holds assets for supplemental needs without affecting benefits.

Two types:

1. Third-party SNT: You create for them (most common in estate planning)
2. First-party SNT: Created with their own money (personal injury settlements)

Pet Trusts

Yes, you can create a trust for your pet.

What it does:

• Names caregiver
• Provides funds for care
• Sets care standards
• Ensures enforcement

Most states now recognize pet trusts. Otherwise, you're hoping someone follows your wishes without legal obligation.

Charitable Trusts

Charitable Remainder Trust (CRT):

• Transfer assets to trust
• Receive income during life
• Charity gets remainder at death
• Get tax deduction upfront

Charitable Lead Trust (CLT):

• Charity receives income first
• Beneficiaries get remainder
• Reduces gift/estate taxes

Creating a Comprehensive Estate Plan

The Trust Funding Checklist

If you create a trust, you must fund it:

Real Estate:

• New deed transferring to trust
• Title insurance notification
• mortgage lender notification
• Property tax records updated

Financial Accounts:

• Bank accounts retitled
• Brokerage accounts retitled
• Change of ownership forms completed

Business Interests:

• Membership/partnership interests transferred
• Operating agreements updated

Personal Property:

• Assignment of personal property to trust
• Specific items listed if valuable

Beneficiary Designations:

• Life insurance beneficiary reviewed
• Retirement accounts coordinated

Common Trust Mistakes

Mistake 1: Unfunded Trust

Creating a trust but not transferring assets. The trust does nothing.

Mistake 2: Wrong Trustee Choice

Your successor trustee will have significant power. Choose carefully.

Mistake 3: Ignoring Updates

Life changes require trust amendments. Marriage, divorce, births, deaths all trigger reviews.

Mistake 4: DIY Complex Situations

Online trusts can work for simple situations. Blended families, tax planning, special needs—get professional help.

Mistake 5: Forgetting Pour-Over Will

Even with a trust, you need a will for:

• Anything not in the trust
• Naming guardians for children
• Handling personal property

Working with an Estate Planning Attorney

What to prepare:

• Asset inventory with approximate values
• Family tree / beneficiary list
• Ideas about who should serve in roles
• Special situations or concerns
• Questions you have

Questions to ask:

• What's your experience with situations like mine?
• What will the total cost be?
• How long will this take?
• What's included in your fee?
• Who will actually draft the documents?
• How do you handle updates?

Expected costs:

The Bottom Line

Wills and trusts are complementary tools, not alternatives. Everyone needs a will. Not everyone needs a trust. Revocable living trusts avoid probate, provide privacy, and enable incapacity planning—but require upfront cost and ongoing funding. Consider a trust if you have property in multiple states, live in a high-probate-cost state, value privacy, or have complex beneficiary situations. Whatever you choose, the key is actually doing it—and keeping it updated as life changes.