Will vs. Trust: Which Do I Need?

If you’re thinking about the future and how you can protect your property and those you love, it can be really comforting to know you have everything in place for them. But, where should you start?

First, you’ll need to decide what you want to do with what you’ll leave behind, and who should inherit it. Then, to ensure the smooth transfer of your money and property, you’ll need an estate plan. Two key documents most commonly used in estate planning are wills and trusts. But, what’s the difference, and do you need both? The answers depend on your circumstances and how large or complicated your estate is. 

What’s the Difference Between Wills and Trusts?

Although everyone should have a will, not everyone needs a trust. While they share some similarities, wills and trusts play distinct roles in ensuring your wishes are met.

A will is a legal document that says who you want to inherit your money and other possessions. It takes effect after your passing. In addition to naming who will receive your property, you can appoint an executor/personal representative to oversee the probate process, where the court supervises the identification of your assets, debt and inheritors. You can even name guardians for minor children. Some states use the term “executor,” and some use “personal representative,” but they perform the same function.

Your executor will be responsible for filing your will with the probate court, and the court will oversee the process to ensure your wishes are followed. If you don’t have a will, a probate court will make those decisions and divide your estate according to state law—which may or may not be in your family’s best interest.

And, one more thing to know: Property that’s owned jointly will automatically pass to the co-owner(s) and doesn’t need to be included in your will.

A trust is a more complex legal arrangement where you transfer ownership of assets to a trust account and can continue to add to it throughout your lifetime. It takes effect as soon as it’s funded. A trust can offer more flexibility than wills, allowing you to set conditions for distribution, protect assets for minor children until they become adults or even stagger when heirs receive money. It can also be set up to manage your assets for you if you become unable.

With a trust, your heirs can bypass the probate process altogether. You’ll appoint a trustee, who has a legal obligation to manage the trust in their best interests. But, it won’t be overseen by the probate court. Most trusts are created during the lifetime of their donors, often called a “grantor”. But, some people opt to include a direction in their will for a trust to be set up after they’ve passed.

Now, trusts can be expensive, with additional costs like fees for managing the trust and tax preparation. Typically, a trustee can charge between 1% and 2% of the assets in the trust. But, if you have minor or special needs children or your heirs don’t have strong financial skills, a trust may be worth the additional cost.

Here are a few side-by-side comparisons to help make things clearer.

Can I Have Both a Will and a Trust?

Absolutely. It’s not a question of either/or. You should have a will. Whether you need a trust depends on your goals—do you want assets distributed as soon as possible, need them to be held until later or have conditions on when and how they can be received? Answering these questions may help you decide.

1.  Are you looking to bypass the probate process?
2.  Is your estate large enough or complex enough to justify management fees?
3.  Do you want someone to manage your finances if you become unable? (This can be accomplished through a trust or with a power of attorney.)

How Can I Get Started?

You can consult an estate planning attorney or, if you’d prefer a more do-it-yourself approach, there are online templates you can choose, like those offered by our partner, Trust & Will. They’ll guide you through the process to customize your document(s). Plus, they offer prepaid legal services, if you want the best of both worlds.

Common Will and Trust Terms

Here are a few key terms you may see related to estates:

• Assets: Something valuable like real estate, stocks and bonds, cash, automobiles and jewelry
• Beneficiary: The person or entity inheriting assets
• Estate: All the money and other property owned by the deceased person
• Executor/Personal Representative: The person named in a will to distribute assets
• Grantor/Settlor/Donor: Someone who creates the trust and transfers assets into it. Grantor may also be used to refer to anyone who contributes to a trust.
• Guardian: A person or entity appointed to act on behalf of a child or for an adult who is unable to make their own decisions
• Heir: Someone who can receive the property of a deceased person
• Intestate: When someone passes without a will. In this case, state law will determine how assets are distributed.
• Irrevocable Trust: A trust that can’t be changed or ended after it’s created
• Principal: The assets transferred to a trust. This can be any combination of money, stock, real estate or other property.
• Probate: The court process for settling a deceased person's estate
• Revocable Trust: A trust that the grantor can change or cancel during their lifetime
• Testator: The person signing the will. In the past, the term for women who signed a will was Testatrix.
• Trustee: The person responsible for managing the assets in a trust according to its terms

How Can Navy Federal Investment Services Help?

Navy Federal can help you with estate planning and the creation of wills, trusts and their management. Need a trust or will updated? We can help with that, too. Visit navyfederal.org/investment-services to see how we may help you.