Passing Down Wealth: If You Have a Will, Do You Need a Trust?

But a trust can offer even stronger and more specific control over your assets, both during your lifetime and after you're gone. It can also be a more straightforward way to transfer your assets after you pass away. But if you already have a will, do you really need a trust?

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What is the Function of a Will?

A will is a legal document that outlines what you want to happen to your possessions when you pass away. It also lets you choose who you want to be in charge of handling your estate and who you want to care for your kids, if you have any, after you're gone.

Creating a will is a crucial step in planning your estate, as it ensures that your property is divided according to your wishes, rather than by the state, in case you pass away without one. Furthermore, drafting a will is a relatively straightforward and cost-effective process.

On the flip side, a will still has to go through the probate process, which is a public court process that can be viewed by anyone. This public process also allows creditors and potentially unscrupulous individuals to see exactly where your assets are headed and who receives them.

What Is a Trust?

Unlike a will, a trust is more than just a straightforward instruction document. It's its own legal entity that can own assets itself. This lets it avoid probate altogether, keeping your affairs out of the public eye through the court system. If you have a trust, you can choose an executor to make private, direct distributions based on your wishes. Trusts can also help with a variety of other things, like giving financial support to special needs children or minimizing income and estate taxes.

The main disadvantage of a trust compared to a will is that it can be challenging to establish, especially when it comes to naming assets in the trust. A trust can also be significantly more expensive to set up than a straightforward will.

Do You Really Need Both a Will and a Trust?

Typically, the more complex your financial situation is, the more beneficial it is to consider setting up a trust. And if you do have a trust, it's usually advisable to also have a will in place. This is because a will can serve as a secondary plan, known as a "pour-over" provision, in cases where assets might be left out of your trust. Your will can serve as a safeguard, ensuring that any omitted assets are distributed according to your wishes, rather than letting the state determine the outcome.

If you have minor kids, you definitely need a will that specifies a custodial guardian, as this is where that designation is typically made. A trust can also name a guardian, but usually, a will is in charge of this responsibility, while the trust names the same person, often referred to as the trustee, to handle the management of the kids' assets.

The Bottom Line

According to the experts at Principal Financial Services, there are situations where a simple will is enough for estate planning purposes. For instance, if you don't have complex finances and you just own traditional assets, like a house, a car and a retirement account, you may be able to get by with just a will. As long as you can still distribute your assets and choose beneficiaries with a will, it might be simpler in some cases. However, a trust keeps your financial affairs private after you die and provides more financial flexibility as your assets grow.

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Inheriting Wealth: Does Your Will Suffice if You Have a Trust?