What’s the difference between a Will and a Trust Do I need both.png

Estate planning is full of confusing legalese and mumbo-jumbo. So I’m going to attempt to try to break down the two most important documents that everyone should know about when it comes to estate planning - your Will and your Revocable Living Trust.

Contrary to popular belief, most people think that all you need is a Will. I think this mainly stems from the fact that many people think their Will avoids probate. That assumption is incorrect. For more information on this, check out your Will does not avoid probate - clarifying a common misconception.

On the flip side, when most people hear the word trust, they think it’s something that only rich people have or people with complex family arrangements. That is also a myth - as explained in my prior article: Trusts Aren’t Just for Rich People.

So I’m going to break down the difference between the two documents, what they have in common, and what they do differently, and most importantly which one is right for you.

What is the difference between a will and a trust?

Your Last Will and Testament

A Will is a legal document that allows you to specify who you would like to receive your property and who you would like to be in charge of distributing such property. Put differently, a Will allows you to name beneficiaries of your estate and appoint the executor (which is called the personal representative in Massachusetts). The executor is responsible for making sure the right things go to the right people in a timely manner.

But your Will is only applicable to assets that pass through your probated estate. In other words, if an asset does not pass through probate, then it does not go in accordance with your Will.

This means that in order for your Will to function properly, you are intentionally putting your family through a public court process that is inconvenient at best and disastrous at worst. If want to learn more about probate, then you may want to check out: what are the 3 types of Probate in Massachusetts?

With that being said, if you have minor children, then you must do a Will (regardless of your wealth) in order to appoint a guardian for your minor children if something were to happen to you. But otherwise, it is generally in your family's best interest to have nothing go through probate and therefore no assets pass under your Will.

Your Revocable Living Trust

For families that want to avoid probate, they get a Revocable Living Trust.

Let’s break down those three words quickly:

Revocable means you can change the document at any point in time. Similar to your Will, this document can be amended so long as you are mentally competent.

The reason why we have to specify “revocable” is because there is another type of trust called “irrevocable”. For purposes of this article, we’re not going to talk about irrevocable trust, but just understand that there is a major difference between revocable and and an irrevocable trusts.

Living means that the trust is created during your lifetime and is generally funded with or holds your assets (the most common being your primary residence) during your life.

This is a critical difference between your trust and your Will, because (as stated above) your Will only comes into play when an asset falls into probate, and probate only occurs after you die. Therefore, your Will only comes into the play after your death. Whereas a living trust is effective immediately and continues on after your death.

Since your living trust is already active, there is no need to validate it after your death (like you would for your Will) and that is what allows you to avoid the probate or the public court process.

Trust – a trust is a legal arrangement where you have three roles involved.

A trustee who is effectively the manager of the trust,
The beneficiary who is the person who gets the benefit from the assets held in trust, and
the grantor - also known as the trust creator, the settlor, or the donor, depending on which attorney is drafting your document - We use four names for the same term because that’s what attorneys do.

The grantor or trust creator defines all the terms of the trust - i.e., who is the trustee, who is the beneficiary, what are their rights, what are their instructions, and what powers are reserved for the grantor.

For most clients, when creating a Revocable Living Trust, the grantor, trustee, and beneficiary are usually the same person during their lifetime, so they are still in full control of the property, but then the roles split after that person dies or becomes incapacitated.

So, in a standard family structure, a married couple would both be the grantors (creators of the trust) and would also be the trustees of the trust during their lives. They would also retain the full benefit of all property placed in trust during their life. After the grantors die, the trustees will switch to successor trustees (which the grantors would have named in the document in advance) to manage the property.

Then they’ll have a list of beneficiaries with instructions for how old beneficiaries must be in order to receive the property outright and the terms of such distributions - for example, distributions may be split up over time at age 25, 30, 35.

Since the trust has much more extensive instructions it can provide 3 major benefits for most families:

Avoiding Probate which we’ve already discussed
Minimize Estate Taxes which you can learn more about in How Do I Avoid the Massachusetts Estate Tax? (4 Proven Strategies), and
Protecting Your Children’s Inheritance - for example, you can insert a spendthrift clause and structure your trust to protect it from your children’s creditor risk, divorce, lawsuits, etc.

So do I need both a will and a trust?

Technically, if you have a well drafted trust and have properly titled your assets, or updated your beneficiaries to be the name of the trust, then you don’t really need a Will. But in practice, if you do decide to go to trust route, then it is highly recommended that you still have a Will that is specifically designed to work with the trust to make sure none of your assets fall through the cracks. This is called a Pour-Over Will.

Since we are all human and sometimes forget to either place assets in the name of the trust or simply never get around to it, the forgotten assets may go through probate and your Will would be there to push that asset back into your trust. So, in the situation when you have both a Will and a trust, the Will is really a safeguard / peace of mind mechanism (unless you have minor children in which case is still useful for naming a guardian for your minor child).

The next logical question is “I understand why it’s a good idea to have a Will in conjunction with the trust, but can I just have the Will by itself without the trust?”

The short answer is, if you want to save money and are very young then the Will is a good starting point. But, if you have real estate, then it is highly recommend that you get a trust. Otherwise, your family will have to deal with going through a public court process and all the problems that come along with it. In other words, if you can afford the trust now and you own real estate, then you are better off getting it done now then waiting to do it later.

In this day and age, I see no reason for a family to have to deal with probate - and the trust is generally the most straightforward solution to that problem.

In Summary

Both a Will and a trust provide instructions as to how your assets will be distributed, but those instructions only apply depending on whether your assets fall into either the probate bucket or in the trust bucket. As discussed, the trust has much more flexibility and benefits than a Will, which is why virtually all of my clients get a trust at some point. But, if money is tight at the moment, then a Will can be a decent band-aid if you are just starting out.