Key Takeaways
- A will can be a great place to start your estate planning, because it’s relatively easy and inexpensive to implement.
- Various types of trusts can be used for different purposes and typically provide more control over how assets are distributed, along with the potential to avoid probate and protect privacy.
- To streamline the transfer process and help ensure assets are passed along according to your wishes, many families find they need both a will and a trust as part of a comprehensive estate plan.
How to Leave Your Assets to the Next Generation
Estate planning is the process of establishing legal documents that direct how your assets should be managed and distributed following your death. A thoughtful estate plan also addresses who will make financial and healthcare decisions on your behalf if you become incapacitated.
As you build your estate plan, you’ll answer questions such as who should inherit which assets, how debts and taxes will be paid, who will manage your finances or healthcare if you can’t, how you can protect assets and minimize tax exposure, and when and on what terms beneficiaries will receive an inheritance either outright or in trust.
At its most basic, estate planning lets you name guardians for minor children through your will and document your wishes regarding which loved ones inherit which assets. More advanced estate planning strategies can minimize your estate tax exposure, minimize your heirs’ tax liabilities, support charitable giving, address complex family dynamics and provide for loved ones with special needs.
A typical estate plan may include:
- A Last will and testament
- A revocable living trust
- A durable financial power of attorney
- A healthcare power of attorney (designation of health agent, living will/advance directive, HIPAA authorization)
- Deeds for real estate
- Assignments for business interests
- Beneficiary designations on retirement and investment accounts
Families with significant assets, business interests, minor children or special needs loved ones may also benefit from additional trusts and advanced estate planning strategies, often coordinated as part of broader estate planning services.
What Is a Will?
A last will and testament, or will, is a relatively simple and cost-effective estate planning document. It allows you to direct how assets are distributed after your death, name an executor or personal representative to administer your estate, and designate guardians for any minor children. A will generally only becomes effective once you’ve passed away.
Many people mistakenly believe that having a will lets assets avoid probate. In reality, probate is the court-supervised process that validates the will, appoints the executor/personal representative, oversees payment of taxes and debts, and authorizes the distribution of remaining assets. Probate can be time consuming and costly, and because probate filings are public, the details of your estate become part of the public record.
A will alone can work well if your estate is relatively small and straightforward, most of your assets are able to be distributed via beneficiary designations, you are comfortable with beneficiaries inheriting outright, and you aren’t especially concerned about probate, privacy or more advanced control features. Even if you also use a trust, a will remains essential for naming guardians for minor children and “catching” assets that weren’t retitled into a trust during your lifetime.
Benefits of a will
Key advantages of including a will in your estate plan include:
- Wills are typically easier and less expensive to create and maintain than many trusts.
- Wills are the only documents that allow you to name guardians and backup guardians for minor children.
- Wills provide clear instructions for how assets should be divided among beneficiaries.
- Wills are flexible and can be updated as your life circumstances change.
Downsides of a will
Before relying solely on a will, it’s important to understand the potential drawbacks of doing so:
- Assets that pass under a will are subject to probate, which can be lengthy, costly and stressful for your family.
- Probate is public, meaning information about your estate becomes part of the public record.
- A will alone may be less effective if you have complex assets, multistate real estate, blended family dynamics, or more advanced tax, asset-protection or charitable planning goals.
What Is a Trust?
A trust is a legal arrangement that holds assets and distributes them to beneficiaries under terms you set in the trust document. A revocable living trust is a core estate planning document that takes effect during your lifetime and continues during periods of incapacity and after your death.
With a trust, you can specify exactly how and when assets are distributed — for example, in stages over time or only once a beneficiary reaches a certain age or milestone. That can be especially useful when you have minor children, loved ones with special needs, or beneficiaries who may not be ready to manage a large inheritance on their own. Additionally, through a trust you’re able to create continuing trusts for the benefit of your loved ones’ lifetimes; such trusts provide asset protection for your beneficiaries, shielding inherited assets from creditors, lawsuits and divorce.
Trusts are particularly common for larger or more complex estates, because they provide more control, flexibility and protection than a will alone. However, one doesn’t need a large or complex estate to establish a revocable living trust.
Many people wonder, “If I have a revocable living trust, why do I need a will?” A revocable living trust is often used alongside a pour-over will, described in more detail below, to clarify how assets should be managed, streamline the transfer process and help protect the privacy of heirs. How do a revocable living trust and a pour-over will work together? The answer is simple: funding.
Once a revocable living trust is established, the revocable trust must be properly funded in order to work. Many people think that once they sign their revocable living trust, everything automatically goes into it. That’s not how it works. A well-known public example highlighting the importance of funding is Michael Jackson’s estate. Although he had a revocable living trust, many assets were never transferred into it. As a result, those assets still went through probate, causing delays and expense.
Accordingly, assets must be intentionally placed into the revocable living trust, either by retitling them or by updating beneficiary designations. It’s essential to work with your wealth planner and estate planning attorney to make sure all your assets are in your revocable living trust.
One of the easiest ways to understand a revocable living trust is to think of it as a bucket. When assets are inside the trust bucket, they receive all the benefits the revocable living trust is designed to provide, including avoiding probate, maintaining privacy, smooth management during incapacity and clear instructions for distribution at death. If assets are left outside the bucket, they’re exposed to probate, court delays and added expense. This is why trust funding is such a critical step in estate planning. You can have a perfectly drafted revocable living trust, but if the trust bucket is empty or only partially filled, the plan doesn’t work the way it’s supposed to.
How does the pour-over will have a role in this process? A pour-over will is a safety net and acts like a funnel into the revocable trust bucket. If an asset is accidentally left outside the bucket at death, the pour-over will directs that asset into the revocable living trust. However, that process still requires probate, which is why we don’t want to rely on the funnel as the primary method.
Common types of trusts
Several types of trusts frequently used in estate planning include:
- Revocable living trusts – These allow you to retain control over trust assets during life and specify what happens to those assets at death. And when funded correctly, these trusts can often help your estate avoid probate for assets held in the trust. You can change or revoke a revocable trust during your lifetime.
- Irrevocable trusts – These trusts are typically used in more advanced planning. Once established, they generally can’t be changed or revoked. Irrevocable trusts may remove assets from your taxable estate, facilitate lifetime gifts or hold assets under terms that can’t easily be altered.
- Supplemental needs trusts (special needs trusts or SNTs) – A supplemental needs trust can provide supplemental support for a loved one with special needs while preserving eligibility for means-tested government benefits, such as Medicaid or Supplemental Security Income.
- Testamentary trusts – Testamentary means “upon death.” Such trusts are created under a will and come into existence at your death. They use the will’s instructions to govern how certain assets are managed and distributed.
- Dynasty or generation-skipping trusts – These trusts can help transfer wealth to grandchildren and later generations while managing estate taxes and protecting assets over multiple generations.
- Charitable trusts – Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) can provide income either to individuals or charities for a set period, with the remainder ultimately passing to a charity or other beneficiaries, often with meaningful tax benefits in the right situations.
- Irrevocable life insurance trusts (ILITs) – An ILIT can hold life insurance outside your taxable estate, helping provide liquidity to pay estate taxes and expenses while keeping the death benefit out of your estate for tax purposes.
Benefits of a trust
Trusts offer several advantages compared with relying on a will alone, such as:
- They provide a high degree of control over how, when and to whom assets are distributed.
- Assets properly titled in the name of a trust generally bypass probate, which can save time and reduce costs.
- Trusts are private documents, helping protect heirs from public scrutiny and potential fraud.
- Certain trusts can shield assets from beneficiaries’ creditors, lawsuits and divorces.
- Naming a successor trustee allows for continued management of assets if you become incapacitated.
- Some irrevocable trusts can help reduce estate taxes or manage income tax exposure in specific situations.
Downsides and practical challenges of trusts
Trusts aren’t right for everyone. Potential disadvantages include:
- A higher upfront cost to draft and, in some cases, ongoing trustee and administrative fees
- Additional complexity, including recordkeeping and possible separate tax filings
- The need to retitle assets into the trust’s name, which can be time consuming and confusing
- Reduced control with many irrevocable trusts, as terms are difficult or impossible to change once the trust is established
Will vs. Trust: How They Compare
The following table highlights key differences between wills and trusts.
Will vs. trust — key differences
Deciding between a will and a trust is rarely an either‑or choice. For many families, the right solution is to use both, because each plays a different role in an overall estate plan.
| Consideration | Will | Trust |
|---|---|---|
| Cost | Generally less expensive to draft and maintain | Typically a higher upfront cost and possible ongoing administrative or trustee fees |
| Good for | Smaller or simpler estates, adult beneficiaries inheriting outright. Most assets can be distributed via beneficiary designations and transfer-on-death deeds (depending on the state) | More complex estates, blended families, special needs situations, charitable or tax goals |
| Probate | Assets passing under a will go through probate | Assets properly titled into a trust generally avoid probate |
| Effective date | Takes effect at death | Revocable living trusts are effective once signed and funded |
| Guardianship | Used to designate guardians for minor children | Doesn’t appoint guardians; a will is still used for minor children |
| Estate tax planning | Doesn’t reduce estate taxes on its own | Certain irrevocable trusts can help reduce estate taxes and offer asset protection |
| Privacy | Becomes part of public record through probate | Generally remains private, which can help protect heirs’ information |
| Incapacity protection | No incapacity protection; only applies after death | Ability to name a successor trustee to manage assets if you become incapacitated |
Do You Need a Trust, a Will or Both?
If your estate is relatively simple and you’re comfortable with beneficiaries inheriting outright, a well‑drafted will, powers of attorney and up‑to‑date beneficiary designations may be enough to start. As your wealth and family complexity grow, you may find that adding one or more trusts helps you:
- Avoid or limit probate
- Provide structure and protection for heirs
- Support loved ones with special needs
- Align your giving with charitable goals
- Manage estate and income tax exposure
There is no single “right” answer that fits everyone. Your family structure, the types of assets you own, your state of residence and your goals all influence whether you should rely primarily on a will, on trusts or on a combination of both.
Next Steps: Build or Update Your Estate Plan
If you’re unsure whether a trust, a will or a combination is right for you, consider partnering with an experienced advisor. At Creative Planning, our wealth managers work closely with our in-house estate planning attorneys to design and implement estate plans that reflect your goals, family dynamics and tax considerations.
We can help you review your current documents, clarify who you want to inherit what when, evaluate whether adding or updating a trust makes sense and coordinate your estate plan with your overall financial and tax strategy. If you’re a business owner, you may also benefit from reviewing the documents every business owner needs so that your estate plan aligns with your business continuity planning.
