More than any other document, a will puts you in touch with your mortality. Perhaps that’s why less than half of adults in the U.S. have a will.
However, if you care about what happens to your property after you die — more importantly, if you care about providing for the loved ones you leave behind — you need a will, and possibly a more extensive document called a trust.
The benefits of a will
If you die without a will, some of your assets will end up where you’d like them to go. If you’re married, property titled in both of your names with rights of survivorship will go to the surviving spouse upon the other’s death. Likewise, assets with proper beneficiary designations will go to whomever you designate. That’s why it’s important to keep ownership and beneficiary designations up to date.
However, for everything else — property held in your name only, including a closely held business; assets without a beneficiary designated; and items without the option to specify the owner or beneficiary (artwork, jewelry, a coin collection, your grand champion chihuahua) — who gets what will be at the mercy of your state’s “intestate” laws.
In Alabama, for example, if your spouse and parents survive you, your spouse will inherit the first $100,000 of your intestate property plus half of the balance. Your parents will receive the other half. Is that what you would want?
In California, which is a community property state, if you leave behind a spouse and two or more children, your spouse will inherit all of your community property (generally, property acquired while you were married) and one-third of your separate property (property you acquired before you were married), while your children will inherit the other two-thirds of your separate property.
If you want to leave anything to your church or other nonprofits, you don’t want to use your state’s default plan! You won’t find any charities on its distribution list.
Typically, a married couple will opt for “mirror” wills. If one dies, everything goes to the other and vice versa.
It is all the more important to have wills once you have children. This is the document in which you name a legal guardian for your kids in the event of both of your deaths, and you specify who will manage money for your children.
The benefits of a trust
If you’re young, don’t have kids, and don’t have a large estate, a will alone may be sufficient. However, once you have children and a larger estate, a trust may be in order — typically a revocable living trust. (“Revocable” means it can be changed, “living” means it is created during your lifetime.) A trust does not replace a will; it is used in addition to a will.
Here are a few of the primary benefits of a trust:
A trust keeps your estate out of probate.
Probate is a court-supervised process of distributing assets after death that is required if you only have a will. The process can take a year or longer, and it can cost between 2%-8% of the total value of the estate for attorney’s fees and court costs. With a trust, probate is not necessary, potentially saving your heirs much time and money.
A trust keeps your information private.
When you die, if you only have a will, that document will become a public record. Not so with a trust.
A trust can give you more control.
It can be a bad idea to leave a lot of money to a child — even a young adult child. With a trust, you can dictate when your children will receive their inheritance, perhaps spreading out the payout over a number of years or setting certain ages when portions of the money you leave behind will be distributed. You also can arrange for someone else to manage the inheritance for your children and approve spending decisions.
Some of this can be accomplished with a will. However, the time and effort needed to add this to a will may make its overall cost comparable to a trust, and with the other benefits a trust provides, you may find it worthwhile to opt for a trust.
A trust can help in special circumstances.
If you own a business or out-of-state real estate, have a special needs child, are in a second marriage, want to leave more of your estate to one child than another, or want to place controls over a spendthrift beneficiary’s use of inherited money, a trust can help you manage these situations more effectively than a will.
It used to be that a prime benefit of a trust was that it could help minimize estate taxes. However, high current exemption thresholds ($12.92 million in 2023, or twice that for married couples) along with the portability of one spouse’s exemption to the other (when one spouse dies, the other can use any of the first spouse’s remaining exemption), means that minimizing taxes is less of a factor in choosing a trust than it once was.
A trust typically costs between $1,000 and $3,000 to set up vs. $300 to $1,000 for a will. However, because a trust helps you avoid the potentially costly probate process, setting up a trust could end up being less expensive in the long run.
Too many variables exist to say definitively whether you need a trust. At the very least, be sure you have a will. Then, consult with an estate-planning attorney to see if a trust may offer you enough benefits to be worth the cost.