Living Trust vs. Will: What's the Difference and Do You Need Both?

When planning what happens to your assets after you die, two common tools come up: wills and living trusts. Both can help ensure your property goes to the people you choose, but they work differently, with different costs, benefits and limitations. They can also work together. Understanding the differences can help you decide what’s right for your situation.

How a will works

A will is a legal document that says who should receive your property after you die and who should be guardian of your minor children. It also names an executor, the person responsible for carrying out your wishes, paying your debts and taxes and distributing your assets.

A will takes effect only after you die. It generally goes through probate, a court process that validates the will, oversees the payment of debts and taxes and supervises the distribution of assets to beneficiaries.

Probate can take months or longer, depending on the complexity of the estate and the state. It can involve court fees, attorney fees and executor fees, which reduce the amount passing to heirs. Probate records are often public, meaning anyone can see what you owned and who inherited it.

Probate processes and costs vary widely by state. Some states have simplified procedures for smaller estates, making probate relatively quick and inexpensive.

How a living trust works

A revocable living trust is a legal arrangement in which you transfer ownership of assets into a trust while you’re alive. You typically serve as the trustee, managing the trust’s assets, and as the beneficiary during your lifetime, so you keep full control. Because the trust is revocable, you can change or cancel it at any time while you’re mentally competent.

You name a successor trustee, who takes over managing the trust when you die or become unable to manage your affairs. When you die, the successor trustee distributes the trust’s assets to the beneficiaries you’ve named, according to your instructions.

Assets properly held in the trust can generally pass to beneficiaries without probate, potentially saving time and money and keeping your affairs private.

Comparing wills and living trusts

Cost is one difference. Wills are usually cheaper and simpler to create. Trusts often cost more to set up, since they involve more complex documents and the process of transferring assets into the trust.

Probate is a key difference. Wills generally go through probate. Properly funded trusts can avoid probate for the assets they hold, which can save time, court costs and administrative fees, especially in states where probate is expensive or slow.

Privacy differs too. Probate records are often public, while trusts are usually more private, since they don’t go through the court system.

Incapacity planning is another difference. A trust can name someone to manage assets if you become unable to manage your affairs, allowing your successor trustee to step in without court involvement. A will only takes effect at death and doesn’t help with incapacity. However, a durable financial power of attorney can also address incapacity for assets outside a trust.

Guardianship is a key difference. Only a will can name a guardian for minor children. A trust can manage money for children, but it can’t designate who will raise them.

Assets in multiple states can be handled more simply with a trust. If you own real estate in more than one state, a will may require probate in each state, called ancillary probate, while a trust can avoid this.

Challenges may differ as well. Trusts may be somewhat harder to challenge than wills in some situations, though both can be contested.

The crucial funding step

A trust only controls assets that are actually transferred into it, a process called funding the trust. This typically involves retitling your home by recording a new deed in the trust’s name, retitling bank and brokerage accounts in the trust’s name and assigning other assets to the trust.

An unfunded or partially funded trust may not avoid probate for assets left outside it. Failing to fund a trust is a common mistake that undermines its benefits. Some assets, like retirement accounts, typically shouldn’t be retitled into a trust because of tax rules; instead, they pass through beneficiary designations.

Why many people have both

Many people who create a living trust also have a will, often called a pour-over will. A pour-over will directs any assets not already in the trust at your death to be transferred into the trust. While those assets may still go through probate, the pour-over will ensures they ultimately pass according to your trust’s instructions. A pour-over will is also where you name guardians for minor children.

Who might benefit from a living trust

A living trust may make sense if you own real estate, especially in multiple states, live in a state with expensive or time-consuming probate, value privacy, want to plan for potential incapacity, have a blended family or complex family situation, have beneficiaries who need help managing money or want to set conditions on how assets are distributed.

A will alone may be sufficient if you have a relatively simple estate, live in a state with a streamlined probate process, have assets that mostly pass through beneficiary designations or joint ownership, or are young with modest assets.

Get advice

Probate costs and complexity vary widely by state, as do the rules governing wills and trusts. An estate planning attorney can help you decide whether a trust is worth it for you, create the appropriate documents and help you fund the trust properly. Whichever you choose, keeping your estate plan up to date and coordinating it with beneficiary designations is essential.