Mature couple reviewing trust plan with financial advisor
Mature couple reviewing trust plan with financial advisor

Key differences between wills and trusts

Choosing the right plan for you and your loved ones

Which method of estate planning is the best fit for your wealth? It’s a question millions of Americans get stuck on every year.

In fact, most people tend to put off planning their estates – two out of three adults have yet to draw up the documents, despite understanding their importance, according to a recent survey by research company YouGov.1

The culprit might not be procrastination, however. It could be uncertainty about which of two common options is best:

A will: Explains the division of assets after one has deceased. An executor such as a spouse, adult child, close friend, or neutral party such as a bank is typically appointed to oversee this distribution and ensure the wishes of the deceased are carried out.2,3,4

A trust: Directs how property is bequeathed. As soon as it is funded, a trust becomes effective allowing property to be distributed before or after death. An institution such as a bank or law firm might serve as trustee and hold the title of the property for the beneficiary.2,3,4

Both are designed to accomplish the same goal, but entail different approaches and considerations.

Should you “will” or should you “trust”?

Even people who are familiar with the differences between a will and trust might lack the confidence to decide which best benefits their beneficiaries while also suiting their personal wishes. So they put it off “until tomorrow” as long as possible. That’s why we’re here to help you take that next step in making your decision.

Here are key considerations about a will and a trust that should help.

Who are your beneficiaries?

In a trust, there may be two or more sets of beneficiaries, such as those who receive wealth from the trust during their lives, and those who receive what is left after the first beneficiaries pass.2,4 Those with kids from a previous marriage may find a trust a better fit because they can control asset distribution among different individuals such as current spouse, ex-spouse(s), and children at varying intervals. In addition, the grantor can control when payouts are made in the case you want to use age provisions for children. For example, you can have one-third disbursed at age 25, one-third disbursed at 30, and the remainder disbursed at 35.

How complicated are your post-life wishes?

Wills are easier than trusts to draw up and manage, making them a good fit for straightforward end-of-life decisions, such as naming guardians, final disposition wishes, and who gets which assets.2 However, a will limits control of the distribution of assets once the grantor has passed away.3 If the beneficiaries have also died, for example, then depending on the state, either other beneficiaries or state law decides who inherits the property. If the will does not make this clear, the state law will likely rule.5

Do you want to keep it private?

Once assets are distributed through a will and/or probate court, they become public record. Assets in a trust, however, are not subject to the probate process. As a result a trust can provide protection against creditors (or scammers) that could file claims against the assets. This doesn’t imply a trust is designed to avoid liabilities, but rather to escape unprovable claims or disputes.

Are your assets ready?

As the “owner” of one’s estate, a trust must be funded. The process of transferring assets will equal more cost and work up front, but usually pays off in the long run.

A few examples:

  • Real estate may entail a “quitclaim” deed – especially for those with properties in multiple states such as vacation homes.
  • Licensed property such as boats and cars would require a title transfer to the trust.
  • Collectables, art, and jewelry would need an “assignment of property” document.
  • The transference of financial assets varies. With securities, life insurance, or retirement policies, assets can be transferred into the trust via a contract using a beneficiary designation at the time of death. Stocks and bonds may need to be reissued to the trust at the time of funding or using a transfer on death form. Please note: CDs may incur early-withdrawal fees if transferred before they mature.6

You can do both.

Still can’t decide? Good news – you can have both a will and a trust. Documents called “pour-over wills” are designed to work together, instructing that any assets in the will be “poured into” the trust at the time of death. Please note: The assets will need to go through probate before transfer.

Will or trust? You don’t have to decide alone.

You don’t have to enter the estate planning decision alone. Fiduciary officers are specially trained to follow, understand, and interpret estate planning guidelines to calculate which approach best suits each client, now and as plans change. Fiduciary officers can also work with your attorney to design an estate plan that best fit your needs.

If you have questions about planning your estate, you can find a Yellow Cardinal advisor in just a few clicks, here. 7