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

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However, a trust can provide more detailed and specialized control over your assets, whether you're alive or not, and it may also be a simpler way to pass on your assets after your death. That being said, if you already have a will, do you really need a trust?

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A will is a legal document that outlines an individual's final wishes and instructions in the event of their passing. It is used to ensure that their assets and property are distributed according to their preferences, state and federal laws can be tricky when it comes to this, so seeking the advice of a licensed attorney is recommended.

A will is essentially a legal document that outlines what happens to your possessions after you pass away. It enables you to name someone to handle your estate and arrange for the care of your children, if you have any, after you are gone.

Drafting a will is a crucial part of preparing for the future because it keeps the state from deciding what to do with your belongings, which is what happens when you don't have a will. Additionally, creating a will is a straightforward and affordable process.

On the negative side, a will still has to go through probate, which is a public court process that anyone can access. This public process also means that creditors, and unscrupulous individuals, can see exactly where your money is going, and who is receiving it.

A trust is a legal arrangement where one person, known as the grantor or settlor, transfers ownership of property to another person or entity, known as the trustee, to protect and manage it for the benefit of a third party, known as the beneficiary.

A trust is significantly different from a will. It's not just a document giving permission. It's its own separate entity with the ability to hold onto assets. This means that it can avoid probate entirely. Instead of your financial matters being court-recorded, a trust lets you appoint a representative to manage distributions privately, according to your specifications. Trusts can also serve various other purposes, including helping with the financial well-being of special needs children and reducing the amount of income and estate taxes owed.

The main disadvantage of a trust compared to a will is that it can be complicated and time-consuming to establish, particularly when it comes to transferring ownership of assets to the trust. Additionally, setting up a trust can be significantly more expensive than drafting a simple will.

Do You Need Both a Will and a Trust?

In general, the more complex your financial situation, the more likely it is that you'll benefit from having a trust. And if you already have a trust, it's usually a good idea to have a will as well. This is because a will can serve as a backup, or "pour-over," that catches any assets that might not be included in your trust. Your will can then ensure that those assets are distributed according to your wishes, rather than leaving it up to your state to decide what happens to them.

If you have minor kids, you'll probably also want to make a will, as it's the tool used to choose a guardian to take care of them. Although a trust might also name a guardian, it's usually a will that's in charge of making this decision. Meanwhile, the trust typically chooses a trustee – who is often the same person – to manage the kids' assets.

The Bottom Line

According to the experts at Principal Financial Services, there are certain situations where a simple will is enough for estate planning purposes. For instance, if you don't have complex finances and just own typical assets like a home, a car, and a retirement account, you might be able to manage with just a will. Since you can still distribute your assets and name beneficiaries with a will, it might be the simpler option in some cases. However, a trust does remove your financial affairs from public view after you pass away, and it also allows for additional financial flexibility as your assets grow.

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