A will is a legal document that outlines how your assets will be distributed upon your death. It also allows you to name guardians for minor children, specify funeral arrangements, and designate an executor to manage your estate. However, a will must go through probate, a court-supervised process that validates the will and ensures debts are paid before distributing assets. Wills are typically less expensive to draft but can result in probate costs later. It is generally advisable to use a will for simple estates, guardianship, and end-of-life wishes. A will can also be used as a backup to address assets not placed in the trust and even provide a pour-over provision to transfer them into the trust at the time of death.
A trust is a legal entity that allows you to transfer assets to another person or organization, usually for a specific purpose, without the need for a will. A trust is a fiduciary arrangement that holds and manages your assets for beneficiaries. Trusts have a higher upfront cost but save on probate expenses and time. There are two primary types:
Wills are straightforward and sufficient for estates with few assets and no special distribution needs. They are best in transferring assets when it concerns a small estate or those not requiring probate avoidance. Only a will allows you to name guardians for your children, and it can detail your wishes for funeral arrangements.
Trusts bypass probate, ensuring a faster, private distribution of assets. They are best in transferring assets when it concerns a large estate, multiple properties in different states, or those wanting to avoid the costs and delays of probate. A revocable trust allows your appointed trustee to manage your assets if you become incapacitated, which is particularly important for those with complex estates or concerns about long-term care. Trusts can stagger distributions to beneficiaries over time, protecting minors or financially irresponsible heirs. Certain types of trusts (e.g., irrevocable life insurance trusts) reduce estate taxes by removing assets from your taxable estate, which is valuable for high-net-worth individuals approaching federal or state estate tax thresholds. Finally, trusts do not become public records unlike wills during probate, providing greater privacy in financial matters.