Will vs. Trust: What Do You Need? Cost, Process and Uses

Wills and trusts are legal instruments that ensure your assets pass to heirs according to your wishes. The main difference between wills and trusts is that wills take effect after you die, while trusts can take care of your assets while you’re still alive.

Also, trusts can help an estate avoid probate, the court process for distributing your property; wills, on the other hand, typically must go through probate. Generally, you may need a will if you're married, have kids or own property. Setting up trusts is an extra step that can make sense if you have a large or complicated estate, or if you need more control over how assets are distributed.

» Need a will?

The beneficiary information you put on certain financial accounts usually takes priority over the beneficiary information you put in your will or trust. As part of the account setup process, financial institutions that hold retirement accounts and life insurance policies often require you to designate a beneficiary for the account, and that designation typically overrides designations you make in other estate planning tools.

How to decide if you need a will, a trust or both

1. Do I need a will?

Many people feel like they don't have enough assets to need a will. Sometimes, this is true; sometimes, it isn't. Check your state's probate threshold — the dollar value of assets that would trigger a longer probate process — to see whether making a will could make the probate process faster.

You might also want to create a will if you have children under 18.

2. Do I need a trust?

How does a will work?

A will is a set of instructions for what to do with a person’s assets after they die. The creator of a will, called the testator, elects an executor to handle the estate’s affairs upon their death. These affairs include implementing the will's instructions for things such as guardianship of minor children and pets, distribution of property and assets, charitable donations and funeral arrangements.

Wills typically do not apply to assets that are owned jointly — those usually transfer to the surviving co-owner when one owner dies. State laws for wills vary, but most require that the testator and two witnesses sign the will before it becomes legally binding and effective.

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How does a trust work?

Trusts are separate legal entities you can set up to ensure that your assets go to the right beneficiaries in the way you choose. They can give you more control over the distribution of your estate, and some types of trusts may even reduce your estate taxes if you have a large estate. Trusts can also help your estate avoid the probate process, which is public record and can take several months.

Unlike wills, trusts need to be funded, which means that you must transfer your assets — property, accounts (investments, retirement, banking), etc. — to the trust by retitling them in the name of the trust.

To set up a trust, the creator (called the grantor) opens a trust account, puts assets in the name of the trust and authorizes another person, called a trustee, to distribute those assets to the trust’s beneficiaries according to the rules in the trust agreement.

» Planning your estate?

Will vs. trust: Overview and key differences