Trust vs. Will: What's the Difference?

Because wills and trusts are both mentioned in relation to death, it’s easy to see why you might get them confused. You may think that a trust and a will are the same things, or that you only need one or the other.

Jump ahead to these sections:

• What's a Trust?
• What's a WIll?
• Do You Need a Trust and a Will?
• The Value of Wills and Trusts

It turns out, there are only a few small things that overlap between them. In general, however, you’ll use them for different parts of the estate planning process. And each one has different benefits.

First, you’ll want to understand the problem they both set out to solve. Because if you die without a will and a trust, it can be expensive, time-consuming, and hurtful to divide up your property.

What’s a Trust?

Trusts are legal designations whose main purpose is to hold and distribute a variety of assets. You can imagine them as a legal pit stop between your ownership of property and the next person who will own it.

Because a trust is a separate entity from you, it continues to exist (and hold your assets) after you die. As the grantor, you will decide upon terms for the trust, including what to do with your assets during your life and after you die. This might look like donating land for public use, or leaving a fund for your children. 

With the help of a lawyer, you’ll set the terms, then select a trustee to manage the trust. A trustee can be a family member or someone else you believe will be responsible with your assets, like a bank or lawyer. Once the trust is made legal, the trustee you selected will be responsible for your assets and seeing through the set terms.

As you can see, trusts involve a few different parties:

• The grantor, who puts assets into the trust
• The trustee, who takes care of and monitors the assets in the trust
• The beneficiaries, or those who receive the assets from the trust

The grantor grants (gives) assets to the trustee, and trusts that the trustee will manage, use, and distribute the assets for the benefit of the beneficiary according to the rules set forth in the trust document.

A common example is setting up a trust to benefit a child. The grantor could decide that the child can only access a small amount of the trust funds before the beneficiary’s 25th birthday. There might also be more rules for keeping the benefits long-term. For example, the grantor could reserve a portion of the trust funds so the child only receives it if he or she graduates from medical school.

The rules for your trust are determined by you and your attorney or online trust service, who sets up the trust for you in exchange for a fee. This special relationship between grantor, trustee, and beneficiary creates a legal place to hold and invest assets. 

For our purposes, let’s think about 3 different kinds of trusts. 

Irrevocable trust

In an irrevocable trust, a grantor places assets into the trust without allowing for future changes to the terms of the trust. This could happen, for instance, if a high-net-worth individual wanted to create a fund to pay for college scholarships. 

The money in the trust would be invested and managed by the trustee. The trustee would also choose the scholarship recipients according to the rules laid out in the trust document. The grantor could not later change his mind and get the money back from the trust. You can use irrevocable trusts for estate and tax planning purposes, too.

Revocable trust

A more common form of trust is a revocable trust, sometimes called a living trust. A revocable trust is created during the grantor’s lifetime. This setup allows you to be the grantor and the trustee, meaning that you put items into the trust, you manage them while they’re in the trust, and you can opt to take them out of the trust as well. 

Typically, the grantor is the beneficiary during his or her life, and his or her surviving spouse and/or children are the beneficiaries after the grantor’s death. The trust document also says who will be trustee after the grantor’s death.

In retirement, you might create one with the plan to leave the assets to certain beneficiaries when you die. But during your life, you use the assets in your trust to pay for your living expenses, healthcare, and everything else just like you would use your normal bank account.

Testamentary trust

Finally—the main source of some will-versus-trust confusion—there are testamentary trusts. These are written into a will: the will itself isn’t the trust, but the will stipulates that a trust will be formed upon the person’s death.

This trust has its own trustees and beneficiaries, but it doesn’t exist before the grantor’s death. In this way, assets remain completely outside a trust until you die.

Testamentary trusts are becoming less popular in many states because they don’t have the benefit of avoiding probate court, and they are more expensive to administer. The trustee has to report to the probate court each year while the testamentary trust exists, which is not required of other kinds of trusts.

What’s a Will?

A will, or Last Will and Testament, is a document you write that confirms your final wishes regarding your property. You’ll sign the will in front of witnesses and a notary to make it binding. 

Among a few other things, it states to whom you wish to leave each of your assets. In many cases, the will may make the designations as simple as possible. For example, you may want to leave your possessions to a surviving spouse. In other cases, it requires dividing up your assets among several friends, family members, or entities. 

Most people choose to have a lawyer draft a will to make sure it will hold up in probate court. Many people use online will tools to create wills when they don’t have time or money to see a lawyer but want something to hold them over.

The purpose of writing a will is to make clear which assets you own as the sole owner. Then, the will allocates your belongings to your heirs. 

It’s a kindness to write a will for two reasons. One, because the local state’s probate courts will determine where your assets go if you don’t write a will. Two, because your family will be much more clear about your wishes, leading to fewer squabbles and feuds. 

If you think you're ready to get a will, online will makers and attorneys are pretty popular options. Look at the comparison table below to see which is best for you.

Do You Need a Trust and a Will?

While some people could use both of these items, here are some cases where you might be better off with a trust, particularly a revocable living trust.

A revocable living trust might be better for you if most or all your assets are in your own name and likely to go through probate. Probate court is the court process by which assets are allocated after your death. This process can be avoided with a well-prepared trust, which is good because it is time-consuming and can be expensive. 

A revocable living trust gives you the option to have someone else manage your money and assets. This can be useful if you ever become incapacitated or disabled. Someone you trust would manage your assets for your for your benefit in the case of a disabling event or illness.

A trust is a good option if you have minor children. You can choose who would manage your money on your children’s behalf until they are old enough to manage it themselves. You can also leave specific instructions on how you want your money to be used for your children, such as a college fund or even to pay for private school. 

Because trusts allow you to avoid probate, they are ideal for large estates that would otherwise have large probate costs. Trusts also have some advantages for those who have had two marriages, have children from prior marriages, or want to give assets to people who aren’t family members. Finally, trusts are useful if you don’t want your assets to become public record, which happens when they go through probate.

Even if you have a trust, you should also have a will just in case you missed anything when you transferred your assets to your trust. The will would simply state that all your assets go to your trust.

There are times when a will is enough. If you are younger, have little in assets, or have a straightforward set of beneficiaries, a will can be ideal. You must pay a lawyer or online service to set up a trust, sometimes thousands of dollars, so creating one shouldn't be the default. It won’t save anyone money if, for instance, you don’t have many assets to place in it. Many fall somewhere in the middle. Consulting a professional may help you determine if a trust or a will is right for you.

The Value of Wills and Trusts

As you make choices about whether to have a trust and/or a will, remember that there are elements of each that you may need. 

A will, for instance, is public record, while a trust holds your assets without entering them into the public record. A will also doesn’t help you if you lose your capability to make decisions. In contrast, a trust can grant the power to handle your assets to a “successor trustee” who you’ve selected when creating the trust.

Both items are important pieces of your toolkit for creating a smooth path for your family in the future. Given that they will be experiencing grief, it’s especially kind to handle the legal and financial paperwork yourself. 

You'll save them expenses and confusion through organizing your assets and making your desires binding and clear. But, remember that you’ll want to speak with a financial advisor or estate planning attorney to understand exactly what role each one should play in the allocation of your assets.