Which is better, a Will or a Trust? Unpopular opinion: It depends on what your goals are and what you are trying to accomplish. Often, the terms Will and Trust are used interchangeably or are compared to one another when they really aren’t comparable. They are both part of a comprehensive estate plan and should be looked at as such. However, at the end of the day, other than the additional financial investment inherent in creating a living revocable trust (whether you hire an attorney or not, it will always cost more to get a Trust), there really is no downside–and a lot of upsides–to having your assets in a Trust versus not having your assets in a Trust. Here’s why.
A Trust is a more comprehensive planning tool than a will. Here are a few things that a Trust does but a Will does not: First, a Trust provides a plan for your incapacity and death, while a Will only provides a plan for your death. Second, a Trust allows your estate to avoid probate when you die, while a Will does not. Finally, a Trust allows you to maintain more control over the management and distribution of your estate, making it a much better tool to create and maintain generational wealth for your children and grandchildren.
Living Trust Benefit #1: Plan for incapacity as well as death
A Will only works when you die. A Will does nothing for you while you are still alive. So, what happens if you are in an accident and you find yourself unable to manage your financial affairs, either temporarily or for a longer term? Even if you have a valid Will, if you haven’t also executed legal documents that give someone else the power to manage things on your behalf during your incapacity (like a general durable power of attorney), a conservatorship will be required. Someone is going to have to go to court to petition for a conservatorship. Through a public court proceeding, a judge will take away your rights and appoint that someone–a family member, friend, or stranger–to take care of you and your finances. A conservatorship is often a very frustrating and emotional process for everyone involved. A Will does not help you avoid a conservatorship if one is ever needed.
On the other hand, a Trust is effective immediately after you sign it, and so works through both your incapacity and death. As long as you create a Trust and properly fund it, you should be able to avoid the need for a conservatorship since you will have appointed a successor trustee (agent) to manage things on your behalf if or when you become incapacitated. Please note, however, a Trust might still not be enough on its own– I recommend that you also execute a durable power of attorney so someone can manage anything outside of Trust, like your 401k or life insurance.
Living Trust Benefit #2: Avoid probate
A Will is a legal document that declares who should get your stuff if you die, and then goes through a court process called probate so that a judge can make sure that your estate is distributed according to your Will. A Will (if not accompanied by a trust) must be probated if the value of the estate is more than a threshold amount. Probate can be a long, costly and frustrating experience for the loved ones of a decedent, especially in California.
Properly holding your assets in Trust and/or naming your Trust as the beneficiary of all of your substantial assets will allow your loved ones to completely avoid a full probate at your death. Essentially, a Trust provides instructions and guidance for your named successor trustee to manage anything and everything that is owned by the Trust, so a judge doesn’t need to get involved.
Will your estate definitely go through probate if you don’t have a Will in place? No. You might be able to avoid probate a Will if your estate is small enough (see this article I wrote about the small estate affidavit process here).
However, assuming the value of your estate is more than the threshold amount, you will want to avoid probate. A Will doesn’t help you do this but a Trust will! So, when looking at the cost of adding a living Trust to your estate plan, you may want to compare it to the huge amount of money your loved ones will save in probate fees down the road.
Trust Benefit #3: Better control the management and distribution of your estate
A Will is usually pretty simple. It is usually a short legal document where you name an executor and say who gets your stuff when you die.
We already discussed above that a Will isn’t effective until you die, while a Trust works as soon as you cannot manage your affairs. A Trust is also the best way to give instructions for how your successor trustee should manage your money for your own benefit, and to control how your beneficiaries receive their inheritance.
After your death, a Trust allows you to put certain structures and restrictions in place to do things like:
- provide guidance for how you want money to be spent for your children until a certain age, or for their lifetime,
- protect your child’s inheritance from creditors, lawsuits, and future spouses,
- keep your surviving spouse from giving everything to a new spouse, or from disinheriting your child,
- control who has the power to remove a trustee and appoint a new one, or
- ensure beneficiaries with special needs won’t be disqualilfied from receiving public benefits.
While you can technically create trusts for your spouse and/or kids IN a Will, to hold the property for your children in Trust until they reach a certain age, for example (this would be called a testamentary trust vs a living trust), it must be drafted properly! Moreover, it is uncommon to see highly customized provisions in a Will that allow you to accomplish much else. This is probably because it doesn’t make much practical sense to do these things using a Will that still needs to go through a probate court, rather than a living trust that has a lot of other benefits.
