Wills and trusts are both indispensable estate planning tools. They can both be used to transfer assets after death. But there are some critical differences. Knowing the difference can be key to planning an effective estate plan.
Structure
A Will is designed to allow you to designate how your assets will be distributed after you pass away. It does not have any legal effect until after death. A Will can give away anything you own without being specifically named. A Will can be revoked or amended anytime before death.
By contrast, a living trust is legally valid once it is created. The legal ownership of assets is changed to the name of the trust, even if you remain in full control over the trust. The trust can only control those assets given to the trust, so funding a trust is a critical (and often missed) step. Whether a trust can be revoked or amended will depend on the type of trust. The typical probate avoidance trust can be revoked or amended at any time.
Probate
Avoiding probate is considered a very desireable goal in nearly all estate plans. It involves substantial paperwork, court appearances, potentially high legal and administrative fees, and substantial time (typically 9-18 months in California). In California, a Will goes through probate but a trust does not. Many people are shocked to learn that a Will alone, no matter how simple or clear, cannot avoid probate. In fact, if a Will is your only estate planning document, then probate is nearly certain to resolve ownership of major assets.
Costs
A trust has more upfront costs than a Will. The trust must also be funded, which could mean additional costs to transfer assets. But since the trust avoids probate, it will avoid all associated probate fees and costs as well. This makes a trust much more cost-effective in the long run.
By contrast, a Will is often very inexpensive to set up. Generic form wills can be downloaded, completed, and properly witnessed for nearly no cost. However, these form wills have little flexibility and may not achieve your goals. Further, since a Will does not avoid probate, there could be substantial fees associated with probate upon death.
Privacy
A trust allows for privacy. A trust does not need to be registered or placed in the public record. This allows the trust details, including who are the beneficiaries and the terms of the trust, to be kept secret from the public. Only those individuals who benefit or play a role in managing the trust need to be aware of the trust details.
By contrast, a Will becomes a public record when it is recorded for the probate process. This means anyone can learn about the details of your Will, including who your heirs are, what they receive, and any additional information placed in the Will, such as names of family members and their ages. Creditors and scam artists routinely monitor public records for Wills where they can use that information to harass and collect money from grieving family members.
Minor Children
If you have minor children, they will need to be appointed a guardian. A trust cannot instruct the court about who would be a good guardian. It can, however, hold property for the children’s benefit. This could keep their named guardian from spending their inheritance before they are of sufficient age to enjoy it themselves.
A Will can name a guardian. Many people use a Will for this purpose. However, I believe a separate document for naming guardians can be more useful. Naming guardians in a Will runs a risk that the Will will be invalidated, thus eliminating the named guardian as well. Additionally, the public nature of a Will makes it less desirable for such personal information about the raising of your children by another.
Which One Is Right For Me?
Choosing between a Will and a trust is not an either/or issue. The Will and trust perform essential functions that cannot be fully replaced the other. Both serve different purposes and act differently. Therefore, the best estate plan will typically include both a Will and trust designed to maximize the advantages and minimize the disadvantages of each.