Will vs. trust: Which is best for your estate plan?

A will is the most common estate planning choice, but that does not mean it’s the right choice for everyone. Wills are often used because they are familiar and can be more accessible. However, they also are frequently used because many people are simply unaware of some of the pitfalls (such as probate) of using a will as the main document for their estate planning.

Trusts have additional features and benefits that are not available with a will, but this does not necessarily mean it is the right option for you. Trusts tend to be more costly and require more steps to complete, but if the mechanisms offered by a trust are better suited to your circumstances, then it will be well worth the time and expense.

Both wills and trusts have advantages and disadvantages, and neither is the best choice for everyone.

A will is a traditional estate planning document that many people presume to be the primary way to “get their affairs in order.” As mentioned, a will documents your wishes as to how your assets will be distributed so that your state’s laws do not control how your financial assets and possessions are passed on. In that way, a will replaces the default plan that is provided by your state’s intestacy laws, which govern the estates of those who fail to create a will or have a will that is later found to be invalid.

With a will, you set forth your beneficiaries and the assets they will receive from your estate after your lifetime. In addition, you designate a personal representative, often called an executor, to be in charge of settling your estate, and you can also name a guardian for any minor children you may have.

In general, a will controls what happens to your assets and who will oversee the distribution process after your death. While a will can be a relatively inexpensive option, it is limited in scope and usefulness to only this purpose. A will does not legally control anything until your death, so it cannot be used for any financial or planning purposes during your lifetime. In addition, because a will must go through probate — the court process for proving a will is valid and then overseeing the appropriate distribution — your assets generally must be transferred to your beneficiaries shortly after your passing. So, with a will, your assets cannot be distributed over time, even if you would prefer for minor beneficiaries or those who might need additional assistance to receive them over a longer timeline.

A will directs how your assets will be distributed among your beneficiaries after your death. As previously explained, a will has no legal authority whatsoever during your lifetime. This is a common misconception, as often people with a will assume that it would take effect during a period of incapacitation or other serious life event.

If you become incapacitated, or unable to make decisions for yourself, the person named as your personal representative cannot access your accounts to pay your bills or otherwise manage your financial affairs.

This means that if your only estate document is a will and you become incapacitated, your loved ones will not be able to act on your behalf without court authorization. Although this may seem unthinkable, it happens more often than many realize. A car accident or serious illness could strike without warning, requiring hospitalization and leaving you unable to make or communicate decisions to others. If this is the case, then a will offers you and your family no protection against the consequences of failing to pay medical bills and manage your finances, or even making medical decisions that go against your known wishes.

In addition, wills carry no legal authority until they have been probated, or proven by a court to be valid.

Although most people have heard of probate, few actually understand what this process entails. In essence, probate is a public legal process in which a judge determines if your will is valid, authorizes your personal representative to act and generally oversees the process of distributing your assets to your stated beneficiaries. The first step in the process is determining your will’s validity, as distribution will not take place unless and until the probate judge determines that your will is valid. If the judge determines that your will is invalid, or there is some defect that makes it unenforceable, then your state’s intestacy laws will apply as if you never completed a will at all.

In general, a will may not be your best option if you are keen to avoid the pitfalls of probate and are concerned about a will’s limitations for protecting you during your lifetime. Remember, a will does not take effect until death and probate, so it is important to consider other protections against the risk of incapacity. When you only have a will in place and you experience incapacity, the court will need to appoint a legal guardian to make decisions on your behalf.

In addition, there are other specific circumstances that make a will less desirable for estate planning. These include blended families, unmarried couples, people with numerous children and people who own real estate in multiple states.

Blended families

Blended families are particularly unsuited for estate planning centered around a will because of the various interests you might not find in a simpler family structure. Second or subsequent spouses, children from different marriages and ex-spouses all commonly lead to dynamics that contribute to a greater risk of a will contest and discontent with your desired distribution. With a will, the probate process exposes your estate to a greater degree of this risk than would otherwise be present.

Unmarried couples

Because marriage is solely a legal matter in the eyes of the state, the decision not to marry could become extremely problematic in the context of probate. Your partner does not have the same legal standing as a married spouse, and so any complications or issues with an intended distribution could leave him or her out in the cold. For this reason, if you are not married to your partner, it could be beneficial to use a trust, as there is less risk of a successful contest or determination of invalidity that could potentially lead to unintended consequences for your loved one.

Numerous children

A big family with many different personalities, motivations and personal interests can be a lot of fun during times when everyone is getting along. But it can also be extremely challenging when there is any conflict or disagreement within the group. With each additional child, you have another viewpoint or opinion about the best way to handle any given issue, and estate distribution is no different. As the time following the loss of a parent is already difficult, heightened emotions can make this dynamic even more precarious. Consequently, using a will to set forth the inheritances of several children can often lead to preventable drama and hurt feelings between siblings. The lack of privacy and tendency to encourage will contests mean probate is likely not the best route for protecting your children from each other.

Real estate in multiple states

When you own property in multiple states, your personal representative must file probate in each of those states. This can exponentially increase the time, cost and hassle for your loved ones. Consequently, a will is most likely not the best option if you own homes, land or other real property interests in more than one state.

A revocable living trust is a common alternative to a will that has become increasingly popular in recent years. No longer just a tool for the uber-wealthy to reduce their estate tax burden, trusts offer many advantages that people with estate values of all sizes can use. This includes the ability to keep their affairs private and protection against financial ruin due to incapacity.

In addition to privacy and retention of control, a trust can also be drafted to preserve your assets so that the maximum value of your wealth is available to benefit your family after your lifetime. The following strategies could be employed to help achieve that goal.

Timing of inheritance

Unlike a will, a trust offers you much greater flexibility in terms of how and when your assets are distributed to your beneficiaries. To do so, the trust can be drafted to give discretion to the successor trustee to delay distributions taken by a third party.

For example, a successor trustee might decide to delay distributions to children who are in the middle of a divorce or lawsuit, or children who are being pursued by creditors at the time of distribution. In this way, a trust can arrange the timing of a distribution so that it truly benefits the intended person.

In addition, this discretion could be used to ensure that a beneficiary is fully prepared to manage their inheritance. If the intended person is a minor, has substance abuse issues or is otherwise ill-prepared to receive a lump sum or substantial asset, then the trustee can arrange for the distribution to occur once the person is in a better position to receive it.

A will, or even a beneficiary designation for a retirement account or other transferrable-upon-death asset, does not provide any flexibility to help protect beneficiaries from themselves. Consequently, people who leave their children or other beneficiaries money or homes that they cannot manage often set up their loved ones to squander their money or lose the asset due to inability to pay property taxes or other upkeep expenses.

Spendthrift children

Many people work hard throughout their lives to give their children a better life and more prosperous future. When considering their financial legacy, the parents’ primary concern is often ensuring their children have what they need regardless of what happens in their lives.

However, it can be challenging for these parents if their children are not as frugal or knowledgeable about personal finance as they would like. If your children have a spending or financial management problem, or if they are simply unprepared to take on significant inheritance all at one, a trust can provide a stream income instead of lump sum, or it can provide discretion to a trustee regarding the amount and timing of a distribution.

These options are not available with a will, so an inheritance received all at once following probate could be quickly lost if this scenario applies to your personal circumstances.

Special needs beneficiaries

It is critically important for parents whose children or grandchildren have special needs to plan wisely for their future. This is because without proper planning, any inheritance that a person with special needs receives can be used to disqualify them from receiving essential government benefits to which they are entitled.

A will offers no protection for these family members, as it cannot be crafted to avoid benefits loss through an inheritance. Those funds will likely be taken into account when determining benefits eligibility, and this can result in a complete loss of state resources and services. A trust, however, can be drafted to include a provision to prevent people with special needs from losing these valuable benefits while still providing financial support that will enrich their lives and protect their well-being long into the future.

A revocable living trust may be the right choice for you if the concerns outlined here apply to your circumstances. For example, if you are worried about protecting your own privacy and the privacy of your loved ones, then you likely will want to consider this option. Additionally, if reading about the delays, cost and burden of probate struck a chord with you, then a trust could be a better choice than a will. And while most people never expect to become incapacitated, if you are strategic about planning for whatever the future may hold and wish to protect your loved ones in case of an accident or illness, then a trust would offer invaluable benefits to consider.

Trusts also offer added advantages for people who have special circumstances requiring more thought or planning. A second or subsequent marriage, owning real estate in more than one state, a large or blended family or special needs children or grandchildren each involve different considerations or challenges that a trust could be better suited to address.